Pre-paid Asset accounts – Most market centers have a prepaid balance of some kind on the balance sheet. When you utilize a prepaid account, you must be diligent to ensure the balance is allocated to the income statement appropriately. Neglecting these accounts can get you into a big mess if you are not careful. Here is the easiest way to make sure this happens correctly and a way to minimize the time you have to even think about these balances in the future. When you book an amount to a prepaid asset, immediately record the journal entries, with future dates, to move that amount down to the income statement.
Here's what we mean. If today you pay $2,000 in Family Reunion costs & you record this to Prepaid Family Reunion, immediately after you make the payment you will book the following journal entries. • Dated in the current month - credit Prepaid Family Reunion; debit the KW Convention(Family Reunion) expense account $222.22.
- Dated in the next month – same as the 1st journal entry.
- Continue recording this journal entry, each month through December. Yes, we are saying to record JE's with future dates. AccountEdge won't mind at all. Keep in mind, the final month amount may have to be adjusted slightly to be sure you take the full $2,000 expense by the end of the year. The pre-paid account must have a zero balance at year end.
- Pull a trial balance detail for Prepaid Family Reunion – dated Dec 31st– and confirm you have a $0 ending balance. There you have it! You can't possibly miss posting the expense & will not find yourself years later with a chunk of change in a prepaid asset account that was never allocated correctly.
When you have booked all your future entries like this, when you look at the Account List in AccountEdge, the balance for the prepaid account will be zero. This way you know that you have booked all the entries correctly.