prepaid expense

@cherie15 

Just so I understand, are you saying that you have 3 years worth of prepaid rent and insurance expenses sitting on your balance sheet as prepaid expense assets?  Were these expenses deducted on your tax return for those years?

Step 1: Review the Prepaid Expense

• Identify the prepaid expenses in your financial records.
• Confirm the original amount and date of payment, as well as the expense period (e.g., 12 months for rent or insurance).

Step 2: Create a Prepaid Expense Account

1. Go to the Gear icon in the top-right corner and select Chart of Accounts.
2. Click New to create a new account.
3. Set the Account Type to "Other Current Assets."
4. Set the Detail Type to "Prepaid Expenses."
5. Name the account (e.g., "Prepaid Rent" or "Prepaid Insurance").
6. Save the account.

Step 3: Record the Prepaid Expense

1. Go to the + New button and select Journal Entry.
2. Enter the date of the original payment.
3. Debit the Prepaid Expense account for the amount of the payment.
4. Credit the Cash or Bank account used to make the payment.
5. Save the journal entry.

Step 4: Set Up Amortization Schedule

• Determine the monthly amortization amount by dividing the total prepaid amount by the number of months in the coverage period.

Step 5: Amortize the Prepaid Expense Monthly

1. Each month, go to the + New button and select Journal Entry.
2. Enter the amortization date.
3. Debit the applicable expense account (e.g., Rent Expense or Insurance Expense).
4. Credit the Prepaid Expense account for the same amount.
5. Save the journal entry.

Step 6: Review Reports

• Use the Profit and Loss Report to confirm the expense appears in the correct month.
• Use the Balance Sheet Report to ensure the Prepaid Expense account is decreasing appropriately.

Step 7: Catch Up on Past Amortization

• If you need to account for months already elapsed, calculate the cumulative amortization and record it in a single journal entry:
  • Debit the expense account for the total past amortization.
  • Credit the Prepaid Expense account for the same amount.

SHEIKH NASIR 

PAK BOOKKEEPING SERVICES