USA Printer Maintenence - Prepaid or Accrued Expense?

[Jeffrey Herbert]

My company does some high dollar maintenance calls on an annual basis for their printers. To this point these annual maintenance calls have not been accrued for. There is no maintenance contract in place with the vendor, so they only bill us after a call has been completed.

At this point I'm being asked to record a call that was just completed as a prepaid expense, and amortize it over the coming year. I think this is incorrect. The mistake has already been made. I think we should expense the latest (not accrued for) call in full, and then begin accruing for next year's call.

Any thoughts?

Thanks!

 

[DTA93433]

For tax purposes, whether you can deduct a "prepaid expense" is determined by the (tax) accounting method your firm uses. If it uses the cash method, and if the cost does not extend beyond a 12-month period, you may deduct the expense in full when incurred (paid). You may also treat it as a prepaid item as well. (See Pub 538 (Accounting Periods and Methods, Periods - , p. 9 [Expenses paid in advance]. However, for accounting purposes, GAAP does require creating a prepaid item (expense).