Prepaid Expenses-What You Need to Know for Yead-End Close

As you begin to make plans for FY25, you may incur expenses prior to June 30, 2024 that must be recorded in FY25. Therefore, we are going to review prepaid expenses and how you must handle accounting for these.

A prepaid is an amount paid by the University for a future expense that has been paid in advance. In other words, prepaid expenses are costs that have been paid in one fiscal year (ex., FY24) but the goods or services will not be received until the following fiscal year (ex., FY25). The University is required to record prepaids as part of the year-end close process so these amounts are properly reported and disclosed (as required) in accordance with Generally Accepted Accounting Principles (GAAP) and Governmental Accounting Standards (GASB). This ensures that these costs are accurately reflected on the University’s external annual financial statements.

The following guidelines have been put into place to ensure that prepaids are consistently treated and recorded in our financial system across the University:

For the items listed below, the invoices and the deposit would be treated as a prepaid. Finance will review invoices exceeding $25,000 to determine if it is a prepaid expense. Finance will calculate the amount of the expense that belongs in each fiscal year and prepare a JET entry to either move the entire invoice or split the invoice between fiscal years by moving expense out of FY24 into FY25.

1. The invoice is paid in FY24 and the goods are received after Sunday, June 30, 2024
2. The invoice is paid in FY24 and the services occur after Sunday, June 30, 2024.
3. The invoice is paid in FY24 because a deposit greater than $25,000 was due for the goods /services and the goods/services are received after Sunday, June 30, 2024
4. The invoice is paid in FY24 for goods received on multiple dates, including FY24 and FY25 dates
5. The invoice is paid in FY24 for services received on multiple dates, including FY24 and FY25 dates
6. The invoice is paid in FY24 for Memberships, Maintenance, or Service Agreements that have a period of service that crosses 6/30/24 (i.e., 5/1/24 – 7/31/24)

Here are some examples of prepaid invoices to help you understand how they will be accounted for at year-end:

Example 1: Deposits or Payment of Equipment/Goods – paid or partially paid (i.e., deposit paid) in FY24 but Ohio University does not take possession of the equipment/goods until FY25. The full amount paid in FY24 would be a prepaid.
Example 2: Membership, Maintenance, or Service Contracts – paid in FY24 for FY25 periods, e.g., an invoice for membership, maintenance, or service contracts with dates of 7/1/24-6/30/25 that may require early payment and is paid on 6/15/24. The full amount paid on 6/15/24 would be a prepaid.
Example 3: Memberships, Maintenance, or Service Contracts – paid in FY24 for periods that cross the fiscal year end, e.g., an invoice for membership, maintenance, or service contract with dates of 4/1/24-3/31/25 is paid on 4/1/24. The calculated amount of the membership or maintenance contract for 7/1/24-3/31/25 would be a prepaid.
Example 4: Travel – Flights, hotel reservations, conference registrations, etc. paid in FY24 for travel not occurring until FY25 would be a prepaid.
Example 5: Services - paid in FY24 for services not occurring until FY25, e.g., an invoice for consulting services dated 7/1/24 – 7/31/24, or DJ services scheduled for dated 7/4/24, but paid prior to 6/30/24 would be a prepaid.
Example 6: Leases – paid in FY24 for lease period of 7/1/24 – 7/31/24 would be a prepaid.

Please Note:
Dates for FY24 are 7/1/23-6/30/24.
Dates for FY25 are 7/1/24-6/30/25.

Note: For prepaids, the calculated value to be moved to FY25 must be greater than $25,000 for a JET entry to be submitted.

Please contact Kris Sano at sanok@ohio.edu to discuss any possible prepaid entries needed.