Hi,
I would like to know how I can record my prepaid expenses. I do pay in advance my rent, thus to say; when am paying my rentals I do pay for 3 consecutive months. How then should I record this in the program?
You can simply record it though a journal entry debit the rental exp by crediting the entire party
No you cannot. Journal entries cannot be used for transactions involving bank or cash accounts receiving or paying money.
Assuming you are using accrual basis accounting, you would post the portion of the payment for future accounting periods to an asset account you create for that purpose. It could be one account for all prepaid items or you might segregate them as Prepaid rent, Prepaid insurance, etc. As the next accounting period comes up, use a journal entry to transfer from the prepaid account to the expense account. For example, credit Prepaid rent and debit Rent.
Thanks Tut, this will help
@Markgreen - once you have created that first Journal, which could contain all your prepaid transactions within it, then in View mode you can click “Clone” - all you need to do is change the date.
In fact, you could create clones for the next 3 / 6 months and they will sit in the background and become live as each date arrives without further action.
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Hi,
Considering the many additions in Manager in the past 4 years, is this still the best practice to manage prepaid expenses today?
Thanks
Yes. I don’t remember the exact time frame when the feature was added, but you could also set up a recurring journal entry to make the transfers.
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To account for prepaid rent:
Create Prepaid Rent asset account and Rent expense account.
When payment is made, debit the whole amount paid to the asset account. It is necessary the whole amount paid is debited to this account so that the bank account can show the actual outflow.
Create a recurrent journal entry, to repeat every month and terminate after the 3rd round.
Each month at the prompt of the software review the journal and save.
Actually, this is not necessary in Manager. The payment form can be split between two line items. The first can be posted to the expense account for the current month’s rent. The remainder can be posted on the second line to the prepaid asset account. The bank or cash account will be credited for the the total payment.
But it is possible for payment to be made well in advance before the time of the current month. In bank reconciliation timing of payment matters and it won’t be right to post payment to any date because we want to recognize the first or current month. That the area I am looking from.
I was only pointing out that the entire payment need not be posted to the prepaid asset account. A portion of it can be posted to the current expense. Normally, when paying something like rent in advance, you pay for an extended period, but at the time the first installment is due. Of course, if you are paying before anything is due, the the entire payment can be posted to the prepaid account.