How to Track Prepaid Expenses for Your Business


Prepaid expense accounting, these expenses are current assets. They’re assets because you benefit from them in the future, usually within 12 months. If the expenses cover items you receive after 12 months, you consider the expenses as deferred expenses for accounting purposes.

adjust the accounts

It’s usually better to pay later. In a situation where we pay later, we use bills. While going through the “Account” menu, select the accounts you want to see in your report. In thePayment accountfield, select the account you used to pay for the expense.

Adjustments for prepaid expenses

It’ll be a great help for me to walk you through the correct steps. We can review the Statement Period to see if the transactions falls within the date range. We’ll use a single customer to do that.

If you want more consistency in your financial statements, consider the accrual method of accounting to record prepaid expenses. When you originally record the payment of a product or service, put the transaction on a prepaid balance sheet account. The initial journal entry for a prepaid expense does not affect a company’s financial statements. For example, refer to the first example of prepaid rent. The initial journal entry for prepaid rent is a debit to prepaid rent and a credit to cash.

If its scheduled or a reminder, then you will also choose how many days in advance it should be created. Additionally, you will also choose the interval, start date, and end date if it is scheduled or a reminder. Selecting the Add New option will pop up window where you can enter details about the vendor.

How to record a prepaid expense: Examples

Sometimes you want to use bills, while other times you should record checks or expenses. In this article, we will take a look at various ways that you can keep on top of your company’s expenses. You might be wondering what type of account is a prepaid expense. As a reminder, the main types of accounts are assets, expenses, liabilities, equity, and revenue. Profit & Loss and Balance Sheets are correct.

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Go to the Vendors menu, then select Pay Bills. SelectAll Liabilities for the Accountfilter, then select specific customers you’ll want to view the invoice and payments applied to it. Also, I’d suggest putting a description on the customer prepayment transaction. This way, you’ll be able to track where the amount is applied to. The retainer item can now be selected when creating an invoice or sales receipt for a deposit or retainer payment.

How To Display Expenses on an Annual Basis

Using this method, you can be sure that the Vendor balance decreases. Using Check or Expense instead of Pay Bills means that the bill may still show up as unpaid. Expense $1,500 of the rent with a debit.


xero studio invoice for reimbursable expenses with the prepaid expense line item as a negative. A quicker way is to record the psyments directly against Accounts Receivable. You can do this in a Deposit or in a Sales Receipt. Customer name is required when recording to AR so it will show as available when you ndxt create an invoice with billable expenses.

ChooseOther Current Liabilitiesat theAccount Type ▼drop-down menu. Expert advice and resources for today’s accounting professionals. Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice.


In the Chart of Accounts window, right-click anywhere, then select New.

You prepay $9,000 of rent for six months. You paid for the space, but you have not used it yet. So, you need to record the amount as a prepaid expense.

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Another example of an expense you might want to consider prepaid expenses for is a quarterly utility bill. Watch this video which demonstrates how to properly handle recording prepaid expense in QuickBooks. You should set up a prepaid expense account as an asset account in QuickBooks. I would also consider making subaccounts of the parent account for the various prepaid expenses. As an example I might set up prepaid insurance as well as prepaid utilities.


You’ll see the credit that was applied to the invoices and the customer’s open balance. I’ve also added this article that can guide you onhow to set up, record, and manage upfront deposits in QuickBooks Desktop. In the Choose Account Type window, select the Other Account Types drop-down, then select Other Current Asset.

You then will the payment date and payment method. The date is when the expense occurred. For this transaction, we used our American Express card. To start paying a bill, you can check the box in the column to the left of the payee. Once checked, the open balance for that payee will be automatically filled into the payment column and total amount column for that payee. Here you will have the options to set the type of recurring bill you want, such as scheduled, reminder, or unscheduled.