Future expenses

Expenses of future periods in the balance sheet are intended to summarize information on costs that were incurred in this reporting period, but relate to forthcoming periods. Such a definition is given in the Regulation on the maintenance of financial statements and in the instructions for using the Chart of Accounts.

Accounting for future expenses represents, thus, the method of distribution of already committed costs. At the same time, the category of these costs does not include operations related to asset retirement, advances or prepayment, among others.

When preparing the statements, it is necessary to take into account the conditions under which future expenses are recognized. In particular, the costs are carried out in accordance with a specific requirement of regulatory or legislative acts, the contract, the traditions of business turnover. One of the conditions is the possibility of determining the amount of costs. Expenses of future periods are recognized as such, if there is a certainty that the outcome of a particular operation will lead to a decrease in the economic benefits of the enterprise.

According to the Instruction to the plan of accounts, the costs, according to their economic content, are divided into two categories. To the first carry the costs of future periods of a preparatory nature. They are connected with the incomes that are expected in the future. Such expenses, in particular, include the costs of mastering new production technologies, mining preparations, preparation for seasonal work and so on. The second category includes the costs of the current period. This group, in particular, includes costs for the repair of expensive production equipment. For such costs, the reflection under the relevant article is considered no more than "smoothing out" the unevenness, using an arbitrary distribution of a significant amount of costs for several periods.

It should be noted that the Regulations do not mention expenditures that are ongoing or periodic. These include, for example, the costs of licensing the type of activity, payment of insurance, to purchase the rights to use software transferred for a specific period. Advances for rental payments are also not specified in the document.

The expenses of future periods connected with the forthcoming incomes are divided into two groups. To the first, costs are directly related to profit in the future. In particular, they include preparatory costs for production needs. The second category includes expenses related to income indistinct, indirectly.

Costs are recognized in the reporting document on losses and profits, taking into account the relationship between receipts and production costs (in accordance with the principle of the ratio of costs and profits). From this it follows that the expenditures of the forthcoming periods should be attributed to the costs that directly condition the profit. This profit may or will come in the future.

In addition, costs can be reasonably allocated between reporting periods. This is possible provided that the costs cause a profit for several periods, or if the relationship between costs and revenues can not be clearly defined or established indirectly.

From this it follows that the method of recording the costs associated with the forthcoming profit indirectly (indirectly) will depend on the professional personal opinion of the accountant. These costs can be distributed, but only if there are convincing justifications for their connection with the receipt of future profits. If there is no such justification, then production costs should be considered as costs in the current period without distribution.