Recording Prepaid Expenses On A Monthly Basis

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Hi, I'm Jayne Miller, The QuickBooks Gal. Welcome to another in our series of “Quicklets” – informational podcasts about QuickBooks and related bookkeeping topics. I hope everyone had a great Holiday Season. It's great to be back for another wonderful year of Quicklets podcasts about bookkeeping & QuickBooks issues. Thanks again for joining me and for sticking with me for the last year +. I look forward to a great New Year!

Today I want to give you an example of how you will expense Prepaid Expenses when you pay for something such as a 1-year insurance policy in January and you want to spread the expense throughout the year on a monthly basis.

Recording Expenses in a Prepaid Account

You purchase an annual insurance policy in January and you prepay the 1-year insurance premium of $24,000 for insurance effective the same date and record it in Prepaid Insurance. There are two ways to record the Prepaid amount.

The first is to just write a check for $24,000 to the vendor and code it to Prepaid Insurance (this is an "Other Current Asset" account type on the Balance Sheet). If you have already recorded the check as an expense, in QuickBooks or Peachtree, you can simply find the check and change the account from Insurance Expense, for example to the prepaid insurance account. If you prefer to record the purchase as a journal entry, you can follow this example:

a. Using a journal entry, debit Prepaid Insurance and credit Cash.

Prepaid Insurance




This records the prepayment of 1-year premium

b. Then you will record the following adjusting journal entry on the (first or last day of each) month there after:

Insurance Expense


Prepaid Insurance


To record insurance January (for example. expense ($24,000 x 1/12)

* $24,000/12 months = $2,000 per month of insurance used

This adjusting entry debits Insurance Expense, increasing the balance by $2,000 to recognize the amount of insurance used up in each month-and credits Prepaid Insurance to reduce the account by the same amount.

This is a good example of how to record prepaid policies such as insurance or workman's comp at the time of payment and then, on a monthly basis, record the appropriate portion of the expense to the monthly financial picture.

I hope you find this helpful. Look for more QuickBooks Gal podcasts on similar topics soon. If you have questions or would like to suggest topics for future podcasts, drop me a line at

That's if for now. I'm Jayne Miller, The QuickBooks Gal. Thanks for listening.

Got a QuickBooks Mess? Call the QuickBooks Gal!

"You must remember this: You're braver than you believe, and stronger than you seem, and smarter than you think." --Christoper Robin

Jayne Miller, is the owner of Custom Business Solutions, is a consulting firm in Reno, NV that specializes in providing bookkeeping and software support. © 2007


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