When is an executed contract booked as prepaid liab as our auditor insists. Thx!
We operate in a fiscal year, July - June. The auditor says if we have signed a commitment in July to pay (annual worker's comp insurance for example) $500,000 over 9 months for the year, we are supposed to record the $500K liability against prepaids. The prepaid basis of $500,000 is amortized by the general ledger account over 12 months while the accounts payable dept. relieves the liability over 9 months. Make sense? My boss never heard of this concept but I explained that this was an audit finding in my previous employment elsewhere.
Thanks! Jackie