A prepaid expense is a payment for a benefit that relates to a future period. Under the applicable accrual policy, the unused portion can remain an asset and become expense as the benefit is consumed. The contract, period and approved accounting treatment determine the schedule; tax treatment may differ.
Get help with your monthly booksPractical records guidance · Updated October 8, 2026 · Fictional examples
Annual insurance or a subscription may be paid upfront while covering later months. A bank payment alone does not establish that the entire amount belongs in the current month’s expense. Review the term and whether an allocation is appropriate.
A prepaid schedule should identify the original amount, covered period, expense recognized and balance remaining. Renewals, cancellations or changes in coverage can affect it. Avoid carrying an old balance indefinitely without a supporting benefit.
Illustrative example · Fictional data
Illustrative example: $1,200 pays for twelve equal months of a subscription. Under a simplified straight-line accrual policy, $100 is recognized each month. After three months, $300 has been expensed and $900 remains prepaid, assuming no other changes or obligations.
No. A deposit, asset purchase or other arrangement may require different treatment. Review the underlying agreement.
Not necessarily. Your tax adviser applies the relevant tax rules and method.
Discuss your monthly records, missing months or incorrect balances. We’ll agree the work, records and price before starting.
Talk about your bookkeeping