Question

during the month of august the client asked you to invoice their recurring monthly invoices for august through december as they were in need of cash. how should this be handled for the business in accordance to gaap?

Answer 1

Invoicing for services or goods before they are delivered goes against the GAAP principles, especially the revenue recognition and matching principles. Revenue should only be recognized when the goods or services are provided.

Step-by-step explanation:

When handling a request to invoice recurring monthly invoices in advance, it's crucial to follow the Generally Accepted Accounting Principles (GAAP).

Under GAAP, revenue should be recognized in the period when the services are performed or the goods are delivered, not when payment is received. This is known as the revenue recognition principle, which is a core aspect of accrual accounting. If a client asks for invoices from August through December to be billed in August, this goes against GAAP because it would involve recognizing revenue before the service is provided.

Additionally, GAAP includes the matching principle, which states that expenses should be matched with revenues. Therefore, pre-invoicing would misrepresent the financial health of the business, as revenues would be over-stated, and liabilities (in terms of services or goods yet to be delivered) would not be properly recorded.

To remain in compliance, the business should continue to invoice monthly as services are rendered or as per contractual agreements.