Entries in the books of accounts - AMC

[Adoni Raghavendra]

In the normal course of accounting we account the expenses incurred so chargeable to the current year as expenses and rest as prepaid expenses. Now the question is about when we have given an AMC{Annual Maintanance Contract]and payment for the said contract is yet not released, what would be the entries to be passed in the books of account.[i.e, AMC period starts from 15.08.2008 to 14.08.09].

[DEV KUMAR KOTHARI]

For annual expenses, best and easy course is to take accural date as date of renewal and charge expenses in a/c on date of renewal. This can be for AMC, insurance, rates and taxes, annual retainership etc. Since you have followed matching principal, last years prepaid will be charged to expenses of this year, this years expenses can be charged if paid before 31.03.09 and balance as prepaid.If not paid by 31.03.09 provide liability for this yeaars expenses, in next year on payment charge against liability so provided and balance as current expenses. Again on next renewal on 15.09.09 you have to adjust for current exp. and prepaid expenses. if you change accrual on renewal date basis, there will be impact in first year, then it will be usual course of accounting one years expenses.

[RAJESH SAWHNEY]

Repairs to be debited by expenses from 14/8/08 till 31/3 and rest to prepaid expenses. Liability for whole of the amount should be created

AI Summary

Guidance on Accounting for Pending AMC Payments: Accrual, Prepaid Expenses, and Liabilities Explained. A query was raised about accounting entries for an Annual Maintenance Contract (AMC) when payment is pending. One response suggested using the renewal date as the accrual date for annual expenses like AMC, insurance, and taxes. Expenses from the previous year should be charged to the current year, and unpaid expenses by 31/03/09 should be recorded as liabilities. Another response advised debiting repairs as expenses from 14/08/08 to 31/03 and treating the remainder as prepaid expenses, with a liability created for the entire amount.