Follow these steps if you have a customer who wants to spread the expense of an item paid in a single amount (i.e. insurance premiums, Yellow Page bill, etc.) over a period of several months in order to allocate expenses to the appropriate month.
QuickBooks Desktop for Windows
- Create an account to track the prepaid expense. Generally, this is an Other Current Asset account.
- From the Company menu, select Chart of Accounts.
- In the Chart of Accounts window, right-click anywhere, then select New.
- In the Choose Account Type window, select the Other Account Types drop-down, then select Other Current Asset.
- Select Continue.
- Enter the Account Name (Example: Prepaid Expenses) and other details, then select Save & Close.
- Enter payment to supplier using the account created in Step 1.
- Create a memorised journal entry to allocate one month or quarter of the expense.
- From the QuickBooks Company menu, select Make General Journal Entries.
- Enter the appropriate date for the first period. You can either use your own entry number or allow QuickBooks to auto-assign one.
- Debit the Expense account and credit Prepaid Expenses for the appropriate percentage of the total payment (1/6 if 6 months, ¼ if quarterly for a year). You can include an appropriate memo if you choose.
- Press Ctrl-M on your keyboard to memorise the transaction. Assign it a name (Example: Umbrella Insurance), and choose Automatically Enter. Select how often you want the entry recorded and the date of the next transaction. Also indicate the number of remaining entries.
- Select OK.
- The entries will record according to the frequency you selected, reducing the Prepaid Expenses account each period. The balance in the Prepaid Expenses account should be zero at the end of the coverage period.
- If the user has multiple prepaid expenses to track, it is suggested that they create sub-accounts of the Prepaid Expenses account in order to track each separately.