Accrual method: how to properly report small business expenses

[pboitch]

For me is not clear how to properly report business expenses in some situations using accrual method of accounting. I will use 5 domain names as an example.

Every year I pay for domain names renewal. Payment date is June 01. Domains valid for 1 year. If I paid on June 01, 2014  $100 for domain renewal and it covers period from 06/01/2014 until 05/31/2015  then how should I report expenses?
a) all 100$ s/b reported as 2014 expenses?  Because it's paid in full in 2014?
b) only portion of year 2014 from amount paid can be reported as expenses (7 month == around $58) and the rest should be reported as 2015 tax year income? (100-58=$42 go to 2015?). Because part of domain effective during 2014 year and part of effective period in 2015 year? 

Thank you!

[fuzzy · Accepted solution]

To properly claim this expense when using the accrual method, use option B.  For more info on prepaid expenses please see http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/prpd-eng.html

[Delphision]

While prepaid expenses are a consideration, and depending on whether the user is reporting full years, the matching principle is of interest in this situation.  It is not entirely appropriate either, to claim a year's worth of expenses on 6 months worth of income.  I would still recommend this as previously posted.  The amounts are not significant either way.

[fuzzy]

As some  say,  6 of one....half a dozen of another   : )

[pboitch]

Thanks to everyone! I think this is logical. That is how I have been done it until now but this year I started to dig into details and was confused by CRA statement "deduct expenses in the fiscal period you incur them" that made me thinking should I apply whole expenses when I paid. However, I rather agree that matching principle is the main reason for accrual method so I better to continue with the option B though it requires much more work. Thanks again to everyone.

[Delphision]

Only the expenses that relate to the calendar year for proprietors need be reported.  You will end up with a full year of expenses any way as the first year has June to December and the second year has January to June and June to December.

[Delphision]

You have asked the same question 3 times.  If you are having trouble finding your questions, click on your name and you will find them.

[pboitch]

There are not the same questions but totally different ones. Income and Deductions subjects are not the same.

As for this particular question - I appreciate your effort to answer. Unfortunately, this answer is not complete and quite general. That is why I asked questions with examples and did not mix all subjects. I understand that _eventually_ all expenses for domain names will be applied. The question was should I apply whole amount in 2014 or I must calculate only portion of amount based on how many days domain names active in 2014 and apply that portion to 2014 tax year expenses; then the portion of domain expenses for domains being active in 2015 apply in 2015.

[Delphision]

You will only get a complete answer from a CRA representative.  The problem there is that you still may get two different answers from two different representatives.