Prepaid Expenses

Some expenses are paid once but belong to many months: an annual rent paid up front, a yearly insurance premium, a maintenance contract. Booking the whole amount as an expense in the month you paid it would distort that month's results and leave the following months looking artificially cheap. The prepaid-expenses system solves this: it records the full payment as an asset, then recognizes it as expense month by month over the period it covers — automatically.

Required license

Prepaid expenses are part of the accounting-prepaid-expenses license.

The three pieces

The system is built from three screens, all under the Accounting > Prepaid Expense Contracts root:

1. Prepaid Expense Item — a master file that describes a kind of prepaid expense (rent, insurance, a service contract) and carries its default accounts and tax plan. You set it up once and reuse it.
2. Prepaid Expense Contract — the document that records an actual prepaid payment: which item, the total amount, and the period it covers. From it the system generates the monthly recognition entries.
3. Prepaid Expense Ledger — the monthly recognition entry. One is generated per month of the contract's period, and each one moves that month's share from the prepaid asset into the expense.

Setting up an item

The Prepaid Expense Item (Accounting > Prepaid Expense Contracts > Prepaid Expense Item) is the reusable template. On it you set the account the expense ultimately lands in, the credit side (where the offsetting credit comes from — see below), and a tax plan if the expense is taxable. Because the item carries these defaults, the contract that uses it only needs the amount and the dates.

Recording a contract

On the Prepaid Expense Contract (Accounting > Prepaid Expense Contracts > Prepaid Expense Contract) the header carries the Document Term and Value Date (which sets the Period), the Currency, and the contract's from/to dates. Each details line then describes one prepaid expense:

• the Prepaid Expense Item and the account it posts to,
• the line's own from/to dates and month count — the span over which it's recognized,
• the amount, expressed one of two ways: a fixed monthly amount × month count, or a day cost × days count (so a contract that doesn't start on the first of the month is prorated by actual days),
• an optional discount and tax (percentage or value), giving the value after discount, value after tax, and the line total amount,
• the credit side and, where relevant, a subsidiary and its subsidiary account type,
• and the full set of dimensions (legal entity, sector, branch, department, analysis set).

Where the credit comes from

The line's credit side tells the system where to take the offsetting credit when the contract posts — you're not limited to one fixed account. The options are a specific account, a specific subsidiary, the current user's subsidiary, the supplier account, a bank account, the customs / insurance / shipping company accounts (handy for import-related prepaids), or the account taken from the purchase item itself.

How it posts: contract then monthly recognition

The prepaid system posts in two stages, and that's the whole point:

• When the contract is committed, it records the prepaid amount as an asset — its effect runs through the Debit / Credit sides (plus Discount and Tax sides when present) for the line totals.
• Each monthly Prepaid Expense Ledger then recognizes that month's share: it moves the month's portion out of the prepaid asset and into the expense account. Twelve months of an annual contract therefore produce twelve recognition entries, each carrying one-twelfth (or its day-prorated share).

Where each side's account actually comes from is governed by the document term of each — see the Document terms reference. (Both the contract and the monthly ledger are processed in the background like any other document — see How documents are processed into accounting effects.)

For Support

• "The whole amount hit one month as an expense" — that's not how it should work; the contract books an asset and the monthly ledger entries recognize the expense over time. Check that the contract generated its monthly entries and that they were processed.
• "The monthly entries weren't generated" — review the line's from/to dates and month count; the number of monthly entries follows that span.
• "A partial first or last month looks wrong" — use the day cost × days count method instead of a fixed monthly amount so partial months are prorated by actual days.
• "The wrong account was credited" — check the line's credit side (specific account, supplier, bank, subsidiary...) and the item's defaults.
• "Where do the asset/expense accounts come from?" — from the Prepaid Expense Contract and Prepaid Expense Ledger terms; see Document terms.