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Philippa1
March 7, 2020
Question

Recording pre-paid expenses

  • March 7, 2020
  • 1 reply
  • 0 views

Hi, 

What's the best way to record a pre-paid expense?

We are a travel company and have some large expenses we have to pre-pay but don't receive the service until later. 

E.g. hotel deposits we sometimes have to pay 6 months before the stay occurs. 

I'd like to record the expense as a pre-payment and then recognise the expense in the quarter it actually occurs. 

Is there an easy way to do this? 

Thanks, 

1 reply

G
GlinetteC
March 7, 2020

You've come to the right place, Philippa1.

 

We can create a holding account to record the pre-payment expenses. Then, create a service item called Retainer that is tied up to the holding/liability account. Here's how:

 

To create a holding/liability account:

  1. Go to Settings and select Chart of Accounts.
  2. Select New.
  3. From the Account Type drop-down arrow, select Other Current Liabilities.
  4. From the Detail Type drop-down arrow, select Trust Accounts-Liabilities.
  5. Enter the name for the account.
  6. Choose an option from the When do you want to start tracking your finances from this account in QuickBooks? dropdown list.
  7. Click Save and close.

To create a retainer item:

  1. Go to Settings and select Product and Services.
  2. Select New.
  3. From the Product/Service information, select Service.
  4. Enter a name (ex. Retainer).
  5. From the Income account drop-down arrow, select Trust Liability Account.
  6. Click Save and close.

As we bill for services, we can use the invoice and bill them for the service. You can learn additional information on how to record a retainer in this article: Record a retainer or deposit.

 

Using the instructions above, we're able to record the pre-paid expenses in QBO.

 

Feel free to visit us again if you have any other concerns.

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