When accounting for large expenses that will not be capitalized, such as Family Reunion expenses, the KW model requires that the money be expensed when spent or it can be allocated over the current year after it is spent.
- When you pay the bill, you’ll code the expenses to Prepaid Expenses (Balance Sheet - Asset Account).
- Then, you’ll book a journal entry monthly (credit Prepaid Exp, debit KW Convention expense) to reduce the prepaid expense asset account.
- At the end of the calendar year (December 31st), the prepaid balance for this should be $0 and you will have fully taken the expense.
Note: There is no provision to accrue for an expense that has not yet been incurred. So this is something you won’t begin until after the expenses are actually received.
Note: the journal entry process is called amortization.