What is a good response to? The FASB has outlined a specific way to deal with costs that affect more than one accounting period. The primary location for this outline can be found in ASC 270 - Interim Reporting. One example is pre-paid expenses, such as prepaid rent or prepaid insurance. Normally, a company will pay the entire year of insurance in one lump sum. However, this payment will be in "effect" for the entire year so it must be allocated over the 12 months. The FASB outlines that these costs should be allocated appropriately to the report prepared. ASC 270-10-45-13 Next is depreciation. This method of expensing assets over a certain lifetime will require spreading that cost over each month for the entire life of the asset. For this, it should be recorded evenly over each interim period. ASC 270-10-45-14 Finally, amortization of intangible assets. This applies towards assets like trademarks or patents. They are recognized annually, divided by the useful life. The FASB outlines similar rules to depreciation in that it should be reported as of its allocation to each period. Meaning only the useful life "consumed" each quarter should be reported each quarter. ASC 270-10-45-16.
What is a good response to?
The FASB has outlined a specific way to deal with costs that affect more than one accounting period. The primary location for this outline can be found in ASC 270 - Interim Reporting.
One example is pre-paid expenses, such as prepaid rent or prepaid insurance. Normally, a company will pay the entire year of insurance in one lump sum. However, this payment will be in "effect" for the entire year so it must be allocated over the 12 months. The FASB outlines that these costs should be allocated appropriately to the report prepared. ASC 270-10-45-13
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Finally, amortization of intangible assets. This applies towards assets like trademarks or patents. They are recognized annually, divided by the useful life. The FASB outlines similar rules to depreciation in that it should be reported as of its allocation to each period. Meaning only the useful life "consumed" each quarter should be reported each quarter. ASC 270-10-45-16.
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