This would make a financial analysis of your business difficult. In the example of insurance if your annual premium for insurance was $10,000 and you did not use a prepaid expense account you would have a large expense taken in one month. The biggest benefit of using prepaid expenses is more accurate financial reporting. One thing you want to make sure is that your prepaid expense asset account has a balance of $0.00 at the end of the accrual period. By setting it up this way your monthly journal entry will happen automatically and your expense will be properly accrued. I would additionally give it a start date of the beginning month of the policy and set it up for automatic entry on a monthly basis with 11 remaining. I would then memorize the journal entry and set it up for recurring auto entry into QuickBooks as often as you would like. In the example of insurance you would make this journal entry: So your journal entry needs to move the money from the prepaid expense asset account to the expense account. When you originally recorded the prepaid expense bill or check the accounting that took place was: Set Up Recurring Journal EntryĪfter you have properly recorded your prepaid expense by entering a bill or check I would immediately set up and memorize a recurring journal entry. For example, if your insurance payment is for the period May 2013 - April 2014 it would be very helpful to add that to the memo. Adding the accrual or policy period to the memo can be very useful. Record Your PaymentsĪny payments to vendors for goods or services that will be delivered in the future over a period of time should be booked to the prepaid asset expense account. Separating prepaid items out into subaccounts shohuld help keep things more organized and also make it easier to identify any mistakes with your accounting. As an example I might set up prepaid insurance as well as prepaid utilities. I would also consider making subaccounts of the parent account for the various prepaid expenses. You should set up a prepaid expense account as an asset account in QuickBooks.
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