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Finance Division

Disbursements

PREPAID EXPENSES

Disbursements made prior to the end of the fiscal year for advance payment of delivery of goods and the performance of services in the next fiscal year is reported as prepaid expenses. Examples of prepaid expenses are rent, insurance, subscriptions, airline tickets, registrations and maintenance agreements.

A payment should be prorated between fiscal years if it meets the following criteria:

  • Payment is for services (contract and agreements) that exceed more than one year and
  • Services straddle the fiscal year-end and
  • The charge is incurred during the last two months of the fiscal year (May and June) and
  • The total charge is greater than $25,000
  • Then the charge should be prorated between fiscal years.

Example: A five-year maintenance agreement with an annual payment is due May 1 for $36,000. The charge should be prorated 2/12 maintenance agreement expense $6,000 and 10/12 prepaid expense $30,000.

Individual payments regardless of the amount, except annual contractual payments, for services paid in advance for the next fiscal year should be recorded as a prepaid expense. Example: A registration fee is paid and an airline ticket is purchased in June for a conference in July.

A good or service which is consumed during the current fiscal year (even though it is for a program which will generate revenues in the next fiscal year), and the charge cannot be refunded, should not be considered as a prepaid expense. Example: Printing and postage expenses incurred in June for a continuing education meeting to be presented in July.

The expenses would occur in one fiscal year, and the related revenues would occur in another. Expenses would negatively impact the current year budget, and the later revenues (with no offsetting expenses in that year) would benefit the next fiscal year's budget performance.

updated April 2012

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