Posted by Jessica Ward on 11/7/10 11:31am
Msg #360055

Question for Quickbooks users

help! I can't figure out how to account for my prepaid account for toll roads/bridges.

Have any of you figured this out? I'd really appreciate some tips.

Regards,
Jessica

Reply by Susan Fischer on 11/7/10 12:19pm
Msg #360057

How about using the amount prepaid as a "payable," then

as you you use it up, put those amounts against it as "paid" on that "bill" "due"?

Reply by ReneeK_MI on 11/7/10 12:50pm
Msg #360059

not an accountant, but ...

seems logical to me that if you're using cash method on your taxes, you'd just treat it like any other expense - put it in as an expense every time you purchase?

Reply by VioCa on 11/7/10 9:06pm
Msg #360098

Re: not an accountant, but ...

For sure it is not a liability account it is an asset account like any other deposit you make. A liability you may have to pay back but this one is going to be expensed out as you go. Debit the actual expense account and credit the prepaid expense asset account after it is used up.
Cash basis of accounting does not mean that you can expense out everything you purchase.
You can only treat as expenses what you use during your fiscal year. Office supplies, other supplies, prepaid expenses are in this category. If you prepay some membership fees for the next five years, you can only claim the prorated amount for each year. Does it make sense, now. Hopefully this helps.

Reply by ReneeK_MI on 11/8/10 5:40am
Msg #360113

Again, I am not an accountant, but ...

I don't know anything about how long a pre-paid toll card would last, but it seems unlikely it would not be expensed-out within the 12-month rule. Same for our usual expenses (paper, toner, etc) - but we also are selling a service, not manufacturing goods, and I believe the IRS makes a distinction there?

Yes, what you say about prepaying something that extends 5 years makes sense (claiming only a prorated amount each year); it would not pass the 12-month rule.

Reply by Jessica Ward on 11/7/10 7:25pm
Msg #360089

Thanks all for the suggestions. I really appreciate it!

Reply by MW/VA on 11/8/10 8:19am
Msg #360117

IMO, it's an expense when you pay it, not when you use it. n/m

Reply by VioCa on 11/8/10 10:18am
Msg #360125

Re: IMO, it's an expense when you pay it, not when you use it.

Under the cash basis method of accounting, allowable deductions are generally taken for the taxable year in which they are paid. Prepaid expenses, which are expenditures that result in the creation of an asset having a useful life which extends substantially beyond the close of the taxable year (12-months or more), are treated differently and may not be deductible or may be deductible only in part for the taxable year in which the expense was paid.

Items such as prepaid rent, insurance, interest, costs of obtaining leases or loans and other expenses, all of which extend in usefulness over a period of years are more like capital expenditures than they are like current expenses. These items need to be prorated rather than deducted in full for the tax year in which they are paid.

Reply by Tess on 11/8/10 10:55am
Msg #360132

Re: Create a credit card account for the prepaid card. n/m

Reply by taxpro on 11/8/10 11:32am
Msg #360148

If you only deposit an amount that will be used up within 12 months or the end of the following tax year, you can expense it when you pay it. That is the exception to the rule that says you must treat prepaid expenses as an asset until the expense is incurred. I can't imagine that you would put more in a prepaid toll account than you could use up in a year.

If you do not meet this exception, create a current asset account and call it "Prepaid Tolls". When you add funds to your account, you debit Prepaid Tolls and credit your Bank Account or your Credit Card Payable, whichever you use. When you use up the funds in your account, you'd make a General Journal entry to debit the expense "Tolls" and credit "Prepaid Tolls."

Or you could do it the way you handle Petty Cash. Debit Prepaid Tolls for the initial deposit. When it gets low, only replenish the amount you have used up. The payment to replenish would be a debit to the expense "Tolls" and credit to Cash or whatever. The amount in the asset Prepaid Tolls remains the same. This would eliminate the need to make a journal entry.

I'd just make sure to deposit less than I could use in a year, and expense it. That's what I do with my postage meter. I usually deposit $150, and I expense the entire amount because I know it will only last me about 3 or 4 months.

Reply by VioCa on 11/8/10 11:52am
Msg #360153

Yes, this is what I was trying to say, didn't give details on the journal entries, but my point was that there are exceptions to the general rule. Another example is if you purchase 10 boxes of paper on 12/31/10 you cannot expense it out in 2010 when you actually paid for.

Reply by ReneeK_MI on 11/8/10 1:27pm
Msg #360180

If you use all the paper w/in 12 mos, you can. n/m