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Level 2

VAT and Prepaid Expenses

I know there are many posts related to Prepaid Expenses but I haven't been able to find one which answers my particular question.

For example: I have an expense for web hosting which I pay annually in advance.

I enter the expense for lets say £100+VAT (£120.00), against my prepaid expense account.

I want to split the payment over two accounting periods so I create a journal entry for the first period, crediting my prepaid expense account, and debiting the appropriate expense account for £50. My question is, considering the fact that I already accounted for the VAT when the original expense was entered, do I still need to select 20% (Purchases) under the VAT column?
I'm just want to make sure I'm not going to mess up the VAT account by somehow entering the VAT twice.




VAT and Prepaid Expenses

Hi there, @MikeB70.


Thank you for providing such detailed information it gives me a helpful overview of the issue. 


If the full 20% VAT has recorded in the previous transaction, then, there's no need for you to enter VAT when entering on the next recording to avoid duplicate. However, if it doesn't total to 20% VAT, then, you can add VAT on the VAT column. 


You may also wish to consider consulting your accountant to ensure your financial records are right. 


Here's a great resource which you may find helpful: How to record Supplier prepayments for Products or Services.


For future reference, visit the articles listed on this page about managing suppliers and expenses for QBO: Manage Suppliers and Expenses for QuickBooks Online.


Please know that you can always get back to us if you have any other questions or concerns. Have a great day.

Level 2

VAT and Prepaid Expenses

Thanks for the response, however the link you provide isn't really relevant to this situation as we're not making payments in advance of receiving a bill, rather we're receiving and paying a bill in advance for a subscription which covers a 12 month period, spanning two accounting periods.


We're entering the original bill including the VAT to a 'Prepaid Expenses' account, so my view is that when entering the journals to move the reallocate part of that expense to the appropriate account, then we need to also specify the VAT as essentially the journal entry will credit the 'Prepaid Expense' account for a portion of the original bill + VAT, then debit that same amount from the correct expense account.

That's my thinking but was hoping someone in a similar situation may be able to clarify if that's correct.

I have contacted my accountant but waiting for a response, and they're not QB experts.

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