Suggestion:
Computer software is an intangible Asset and therefore must be capitalised and amortised over its useful life. The entries are:
Dr: Intangible Asset
Cr: Accounts Payable
If the licence is valid for only 1 year, then the asset must be amortised over its useful life. If you renew, then the process starts over. How the amortisation entries are to be posted depends on your reporting requirements. If you present monthly financial statements (which is usually the case) then the amortisation amount needs to be calculated monthly (you can simply calculate the annual amount and divide by 12) and booked as follows:
Dr: Amortisation Expense
Cr: Provision for Amortisation
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1. For purchase of computer software
Computer software a/c – Dr.
To sundry creditors a/c (supplier)
2. It is to be classified under fixed assets
3. If the software is valid for one year, it can be alternatively shown as an indirect expense – under computer maintenance
computer maintenance a/c – dr.
To Sundry creditor a/c
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