which date of expense to choose?

[persig]

I have a following question:
The UK company, using FreeAgent. Usually we pay to subcontactors late (sometimes for a month). In this case, is it better 1. to create an expense with a date of bank transaction, attaching invoice OR 2. when we receive the invoice, to create bill ---so the date of expense will be the date of receiving an invoice\getting the service ? 1 or 2?
Thank you!

[Maslins]

The proper way is to use the bill feature. If the amounts you're talking about are non trivial, and like you suggest you're typically paying them a month or more after getting their invoice, I'd do this.

For trivial costs that you pay imminently, no need to bother with bills. More hassle than they're worth.

Critical thing is if you do create a bill, ensure when it's paid you mark the bank transaction as "bill payment". Often we see people create the bill, then explain the bank transaction as "payment" --> "[category]". This means the cost is duplicated in the P&L, and the creditors section incorrectly shows the amount still owed to the supplier.

[TheCyclingProgrammer]

As Maslins points out, company accounts are prepared on an accruals basis so you should be recording expenses when they are incurred - normally the date on any invoice or bill - not when they are paid.

Similarly if you’re using VAT invoice accounting transactions should be reported in the correct period for the appropriate tax point (again normally the invoice date).

This is particularly important where invoices and subsequent payment span financial years and VAT quarters.

I follow the process outlined above. I don’t bother with bills for anything that gets paid on the same day as the invoice or for relatively small amount at that might be a day or two after (eg small online purchases or direct debits for ongoing subscriptions) but I use bills for anything significant.