The director of marketing for Mobile Computer Co., Sheri Keller, had the following discussion with the company controller, Isaiah Johnson, on July 26 of the current year:
Sheri: Isaiah, it looks like I'm going to spend much less than indicated on my July budget. Isaiah: I'm glad to hear it.
Sheri: Well, I'm not so sure it's good news. I'm concerned that the president will see that I'm under budget and reduce my budget in the future. The only reason that I look good is that we've delayed an advertising campaign. Once the campaign hits in September, I'm sure my actual expenditures will go up. You see, we are also having our sales con¬vention in September. Having the advertising campaign and the convention at the same time is going to kill my September numbers.
Isaiah: I don't think that's anything to worry about. We all expect some variation in actual spending month to month. What's really important is staying within the budgeted tar¬gets for the year. Does that look as if it's going to be a problem?
Sheri: I don't think so, but just the same, I'd like to be on the safe side.
Isaiah: What do you mean?
Sheri: Well, this is what I'd like to do. I want to pay the convention-related costs in advance this month. I'll pay the hotel for room and convention space and purchase the airline tickets in advance. In this way, I can charge all these expenditures to July's budget. This would cause my actual expenses to come close to budget for July. Moreover, when the big advertising campaign hits in September, I won't have to worry about expenditures for the convention on my September budget as well. The convention costs will already be paid. Thus, my September expenses should be pretty close to budget
Isaiah: I can't tell you when to make your convention purchases, but I'm not too sure that it should be expensed on July's budget.
Sheri: What's the problem? It looks like "no harm, no foul" to me. I can't see that there's anything wrong with this—it's just smart management.
How should Isaiah Johnson respond to Sheri Keller's request to expense the ad-vanced payments for convention-related costs against July's budget?
Mobile Computer Company: When should the advance convention-related payments be recorded as expense in the accounting records. The discussion centers around the ethics of recording the expenses in July as opposed to September when the convention is held.