TITLE PREPAID EXPENSES DEPARTMENT ACCOUNTING SECTION ACCOUNTS PAYABLE NUMBER

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TITLE PREPAID EXPENSES DEPARTMENT ACCOUNTING SECTION ACCOUNTS PAYABLE NUMBER

Title:

Prepaid Expenses


Department:

Accounting

Section:

Accounts Payable

Number:

AP-104



STANDARD OPERATING PROCEDURES

Effective Date: June 2012

Page 2 of 2



Objective:

Since prepaid expenses represent payments in advance for items, goods, or service, and therefore, have a financial impact on the available cash funds of the hotel, careful consideration must be exercised before such expense is incurred. It is Prism’s policy to adhere to standard acceptable accounting procedures in the recording and expending of prepaid items.


Policy Application:

This policy applies to all hotels. Where there is a duplication or variance of duties, responsibilities, actions, etc., they will be clearly defined as Locally Controlled Accounting (L), Corporate Supported Accounting (C) or both (L/C).

Definition of
Prepaid Expenses:

Prepaid expenses represent payments for items, goods, or services that benefit future operating periods. Normally, the amounts are charged to operations based on when the benefits are received.

Examples of
Prepaid Expenses:

Prepaid expenses include, but are not limited to, the following examples.

  • Prepaid Advertising

  • Brochures

  • Property Assessments

  • Interest

  • Dues & Subscriptions

  • Insurance

  • Licenses & Permits

  • Maintenance Contracts

  • Property Taxes

  • Operating Inventory – see limitations


NOTE: Relocation expenses can no longer be amortized and must be expensed as incurred.


Operating Inventory – Use Sparingly:

Occasionally, certain major inventory purchases are incurred for a variety of reasons, i.e. significant discount, imminent price increase, manufacturing downtime, unpredictable supply, etc. These expenses may be coded to Prepaid Other if they,

  1. Exceed $5,000 in purchase price, and

  2. Can be expended over a three-month period.

If an item exceeds the three-month period limitation, the Controller (L) / Sr Director CAS (C) must approve in writing prior to coding to Prepaid Other.



Approvals &
Responsibility:

The Controller (L) or the General Manager (C) must approve all items coded to the prepaid balance sheet account.


It is the Controller (L) and the Sr Accountant (C) responsibility to ensure items coded to a prepaid account are appropriate and fully supported.



Prepaid Expenses Worksheet &
Documentation:

A worksheet is maintained for each expense and includes the following information.

  • Payee

  • Brief explanation of the prepaid (i.e., annual maintenance contract on a copy machine, food and beverage licenses, maintenance contract on the PMS, POS, etc.)

  • Amount paid

  • Months in which the expense is spread

  • Monthly expense

  • Year-to-date expense

  • Balance to be carried over to the next year, if applicable


Documentation that must be attached to this worksheet are,

  • Copies of an invoice or billing

  • At the beginning of the year, items carried forward from a prior year must also be documented.


Monthly Journal Entries & Maintenance:

Expenses are applied in accordance with the term of the prepaid item (i.e., dues and subscriptions are expended in the months they benefit, etc.).


  1. At the end of each month, a journal entry is made to recognize a prepaid expense by debiting the applicable expense and crediting the prepaid balance sheet account.

  2. The remaining balance on the prepaid must be reconciled to the general ledger account balance.

  3. A monthly reconciliation of every prepaid account must be approved and signed by the Controller (L) or Sr Accountant (C).


CONFIDENTIAL DOCUMENT

Printed copy not guaranteed to be the most current. Consult web site for latest version

Monday, June 1, 2012



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