When closing the books, remember to account for both prepaid and deferred expenses. This will ensure your accounts accurately reflect your company's financial position and report the correct financial result.
We remind you that one of the most common operations, which must be carried out in the accounting and tax closing process, are those derived from the accrual of income and expenses.
As defined by the General Accounting Plan (PGC), according to the accrual principle , "the effects of transactions or economic events will be recorded when they occur, allocating to the financial year to which the annual accounts refer, the expenses and income that affect it, regardless of the date of payment or collection."
Therefore, when closing your company's accounts, don't forget to make the necessary accounting adjustments to ensure this principle is met.
Prepaid expenses
These expenses correspond to transactions paid in the current fiscal year, when their accounting accrual corresponds to the following fiscal year.
First, check the expenses you have paid and recorded during the year that is ending, but which must be fully or partially allocated to the next year:
- You must adjust this expense in the accounting records and write it off against a prepaid expense account (account 480).
- The following year, when the expense has been incurred, you must cancel that account and record - now for real - a larger expense.
These can occur, among others, through the recording of the following operations (insurance premiums; advertising paid in one year, but with a duration to subsequent years; leases of premises paid in advance; accrued and unpaid interest on loans and leases; disbursements or significant payments for attendance at trade fairs, made in the year, whose fair will be held in the following year, among others).
Accrued but unpaid expenses (deferred expenses)
Also check that the expenses for services received in the year ending, but which you will pay for the following year.
These expenses are those that, having no record of their payment, must be charged to this fiscal year, such as those due to financial expenses or purchases or other expenses made for which the corresponding invoice has not yet been received.
In these cases there is no specific account to record them; it will be enough to record the corresponding expense (financial expense, salaries, professional services, etc.) against the supplier account or against an account for invoices pending receipt (account 4109).
See some examples of when your company will need to account for a deferred expense at the end of 2021:
- Bonus payments. You must account for the proportional part of the bonus payments that you will pay in 2022, but which were generated in 2021 (i.e., the payments that the workers would already be entitled to receive if they left the company before December 31, 2021).
- Interest. You must also account for interest on loans or deferrals accrued up to December 31 and whose payment obligation has been set after that date.
- Audit. If your company undergoes an audit, you can also record the expense at the end of the year. Although you pay these expenses in 2022, you can record them in 2021, since the obligation to have an audit actually begins on December 31st.
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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