Prepaid and Accrued Expenses

Overview

• In accordance with U.S. Generally Accepted Accounting Principles (GAAP), Swarthmore College is required to report transactions in the proper fiscal period.  Swarthmore College's fiscal year runs from July 1st to June 30.  
• Goods and/or services received on or before June 30 will be recorded as an expense in the fiscal year ended June 30. If they are received after June 30, they will be recorded in the new fiscal year. It is important to note that neither the budgeting process nor the purchasing process has any bearing on when a transaction is recorded for financial accounting purposes.
• Prepaid and accrued adjustments are intended to ensure that the College's annual financial statements present fairly, in all material respects, the financial results for the year.
• The Business Office will review all revenue and expenses over $1,000 to ensure posting to the correct fiscal year.  If an adjustment is warranted, the Business Office will post an adjusting journal entry to ensure the payment is expensed to the proper fiscal year.
• For accrued expense adjustments, the entry will increase current year expenses and decrease subsequent year expenses for the amount of the transaction.
• For prepaid expense adjustments, the entry will decrease current year expenses and increase subsequent year expenses for the amount of the transaction.
• It may be necessary to provide the Business Office with evidence of when the goods were received and/or services were rendered.
• In all cases, please code the expense for payment as you normally would and also make a clear notation on the expense item itself which fiscal year should be charged based on the criteria outlined within this document.

Prepaid Expense

• Items over $1,000 that are paid during the current fiscal year, but will not be received until the next fiscal year will be considered prepaid expenses.
• In some instances an expense may not occur within the confines of one fiscal year. For example, a subscription renewal or maintenance contract may be for 9 months of one fiscal year and 3 months of another fiscal year. In these cases, the Business Office will split the charge accordingly charging 9 months to the current fiscal year and holding the remaining 3 months until the next fiscal year as a prepaid expense.  The entire expense will be paid at the time of processing.
• Amounts classified as prepaid expense items are not reflected in the expenses for the current year, but are charged to a subsequent fiscal year.
• Examples of Prepaid Expenses
  • Advance travel payments for trips to be taken after July 1.
  • Subscriptions or membership fees that begin in the next fiscal year.
  • Maintenance fees or contracts and software licenses with a term date beginning after July 1.

Accrued Expense:

• Expenses greater than $1,000 that has occurred in the current fiscal year, but no invoice has been received prior to the fiscal year-end accounts payable closing date (typically mid-July) will be considered an accrued expense.
• Contact the Business Office of such expenses.  At that time, the Business Office will establish an expense in the current fiscal year.
• Examples of Accrued Expenses:
  • Receipts for travel advances that have not yet been received prior to the accounts payable deadline.
  • Equipment/item has been received as of June 30; however, no invoice has been received from the vendor prior to the accounts payable deadline.
  • Contractor has not yet invoiced for work performed in the current fiscal year prior to the accounts payable deadline.

If you should have any questions regarding any of these procedures or to make expense adjustments, please feel free to contact the Business Office at businesoffice@swarthmore.edu.