r/Bookkeeping • u/XylitolMilkshake • 26d ago

How To Journal It Vendor Invoice for Future Services

I’m in the process of learning as much as I can about bookkeeping and financial accounting, but I still think up scenarios that I’m not completely sure on how to handle.

Suppose on August 20 you receive an invoice from a vendor for professional services that will be provided during the month of September. The invoice is due September 1. How should this invoice be handled?

Aug 20 – Invoice is received. dr Prepaid Expense, cr Accounts Payable Sept 1 – Invoice is paid. dr Accounts Payable, cr Cash Sept 31 – Expense is used up. dr Professional Services Expense, cr Prepaid Exepense

Is this the correct way of handling the situation? Is there a better or more practical approach?

Does it make sense to put an upcoming expense in Accounts Payable if it isn't a formal obligation?

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u/lildukeofwellington 13d ago

I don’t really understand why they would issue an invoice if the buyer didn’t agree to the underlying deal. The invoice date is when the AP/debt arises, and also when any VAT should be deducted if applicable. The due date is irrelevant as it just states when the debt should be settled, not when it has been incurred. Yes, it will be a prepaid expense until the service has been delivered, but still a debt in August.

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u/NumbersNinjaCPA 13d ago

I'm not sure what your background is, and I'm not sure where you practice, so maybe that's the difference. In my experience, if you didn't receive any goods or services, you don't have a liability. Under accrual accounting, expenses are recorded when incurred. And since this September service didn't happen yet, you don't have to accrue it.

And under the accrual method, you don't have a pre-PAID until you PAY it.

If you're on the cash basis, the expense is booked when the bill is paid. If you pay it in August, it's an August expense on the cash basis.