I’d like to spread the cost of long-term purchases across multiple accounting years, what is the proper method?
I have just paid £480 for 48 months of website hosting and would like to record:
£60 in 2017-2018
£120 in 2018-2019
£120 in 2019-2020
£120 in 2020-2021
£60 in 2021-2022
Rather than £480 in 2017-2018.
I’m not an accountant but I can think of two obvious ways.
Option 1: you could log the whole cost now as a single purchase, then journal all but this year’s share over to a balance sheet code such as “prepayments”. Then in each subsequent year, journal that year’s share back from prepayments to the original P&L code (you can in fact set up journals for any date, past or future, so you could even create all the journals for the next 4 years right now with the appropriate dates).
Option 2: log the £480 as a prepayment to the supplier, then set up a £60 purchase now and then recurring purchases to account for the rest at the appropriate times, and pay these purchases from the credit.
If you’re VAT registered then option 1 is probably the one to go for as that would account for all the VAT now, in the period matching the date of the supplier invoice, but check with your accountant if you want to be sure.
Very helpful - I’ve just done Option 1 and it’s worked great. I didn’t realise journals could be in the future!