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How are prepayments treated when goods aren't received until after end of period

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Hi folks,

Not an accountant, but more a person of interest within my business- I have a query around how prepayments are treated in the scenario below:

26th Jan: Order placed for ingredients

31st Jan: Ingredients dispatched to us, invoice raised with this date on

2nd Feb: Ingredents received by us

In this scenario, am I right in thinking that the invoice will be posted as the 31st Jan, and then a prepayment posted for the same amount to effectively cancel this expense out in January's accounts. The prepayment will then be reversed on the 2nd Feb, so that the expense falls in Feb. If no prepayment is raised, it would give a stock issue, as we have accounted for ingredients in that period that haven't been received into stock, thus over calling our total COGS for the month.

Am I of (roughly) the correct understanding?

Thanks in advance


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23rd Apr 2019 18:36

Pre payment or goods in transit? Otherwise you have it rivht

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to WhichTyler
23rd Apr 2019 18:43

What would the difference be? I suppose the main thing is to get it out of COGS until the goods are received so that it doesn’t affect the GM of the invoice date period

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to eclipse15000
23rd Apr 2019 19:41

It's up to you and your processes really; if you find this happens a lot it might be worth having a goods in transit account to separate this from eg paying 12 months of insurance up front

Alternatively don't post the invoice until you have a Goods Received Note to confirm that the invoice is payable (right quantity of right goods etc)

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23rd Apr 2019 20:16

Depends where you routinely post ingredients invoices. In some organisations it would be to stock and only transferred to the P&L when used.

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