Q: I have a few cloud -based -service businesses who spend a lot of money on things like itunes, software like Office 365, and dozens of others that relate to the operation of their business. What acct do you guys use for this type of expense? Dues and subscriptions, computer expense, come to mind.
A: We have this argument all the time in our office. I am a Dues and Subscriptions guy, but others are Computer Expense people. We rented sailboats for our summer outing and went so far as to name one boat "Dues and Subscriptions" and the other boat was "Computer Expense." Whichever boat won was going to be how we treated clients expense accounts.
Computer Expense won, but we didn't really take it seriously and change our ways. We're still divided at the office. However, I prefer to use Dues and Subscriptions for Office365. iTunes and Spotify go in Office Expense for me.
I feel like Dues and Subscriptions is going away because folks aren't buying newspaper and magazine subscriptions like they used to, which is why the lines are blurred here. It is so easy to put things in computer expense, but I don't think you get as good of an analysis, because we primarily use computers in business, and therefore computer expense can get cluttered with so many various services, software, and hardware that it makes it difficult to make be useful. That is why I like to use Dues and Subscriptions for recurring charges like Office365 and other computer services we, and clients, pay for monthly.
One of our employees has a good argument for Dues and Subscriptions. He believes that account should be reserved for professional development, like professional dues or memberships to industry-style organizations, like the AICPA for accountants. I can get behind that, but I still like to put recurring subscriptions for practically anything we pay for like, TSheets time tracking, Boomerang for Gmail, Intuit ProAdvisor, etc.
When it comes to booking expenses for clients, I may ask them what their preference is. Ultimately, the financial statements we generate need to be understood by its users, so it is my goal to put the expenses where it makes the most sense to the people who rely on them and make the business's decisions.
Whatever you decide, try to stick to it so the IRS isn't getting heavy expenses in one account in one year, and then it shifts somewhere else in another year. Also, we reconcile our cash-basis clients financials to the tax return every year, so if the tax accountant takes another stance than I do, I will arrange the COA to resemble the tax return.