{"id":151151,"date":"2026-10-13T13:46:38","date_gmt":"2026-10-13T13:46:38","guid":{"rendered":"https:\/\/docs.daftra.com\/?post_type=tutorial&p=151151"},"modified":"2026-10-19T13:17:11","modified_gmt":"2026-10-19T13:17:11","slug":"recording-prepaid-expenses-and-recognizing-them-monthly-with-recurring-journal-entries","status":"publish","type":"tutorial","link":"https:\/\/docs.daftra.com\/en\/tutorial\/recording-prepaid-expenses-and-recognizing-them-monthly-with-recurring-journal-entries\/","title":{"rendered":"Recording Prepaid Expenses and Recognizing Them Monthly with Recurring Journal Entries"},"content":{"rendered":"
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Prepaid expenses<\/strong> are amounts you pay in advance for an upcoming period, such as a year’s rent, insurance, or an annual subscription. The correct accounting treatment is to record the amount as an asset<\/strong> when you pay it, then charge part of it to expenses every month<\/strong>. This guide explains how to do this in the system, and how to make the monthly recognition journal entry recur automatically.<\/p>\n

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\ud83d\udec8<\/span><\/p>\n

Example used in this manual:<\/strong> A full year’s rent of 12,000 paid on 01\/01\/2026, of which 1,000 is charged to rent expense every month.<\/p>\n<\/div>\n

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Contents<\/p>\n

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  1. The steps at a glance<\/strong><\/a><\/li>\n
  2. Step 1: Create the prepaid expenses account<\/strong><\/a><\/li>\n
  3. Step 2: Record the payment with an expense<\/strong><\/a><\/li>\n
  4. Step 3: The journal entry recognizing the first month’s expense<\/strong><\/a><\/li>\n
  5. Step 4: Make the journal entry recur monthly<\/strong><\/a><\/li>\n
  6. Following up on and stopping recurring journal entries<\/strong><\/a><\/li>\n
  7. Why not use a recurring expense?<\/strong><\/a><\/li>\n
  8. FAQs<\/strong><\/a><\/li>\n<\/ol>\n<\/div>\n

    The steps at a glance<\/h2>\n\n\n\n\n\n\n\n
    Step<\/th>\nJournal entry<\/th>\n<\/tr>\n
    1. Create a Prepaid Expenses<\/strong> account under current assets<\/td>\n\u2014<\/td>\n<\/tr>\n
    2. An expense for the full amount on the prepaid expenses account<\/td>\nDebit prepaid expenses 12,000 \/ Credit the treasury 12,000<\/td>\n<\/tr>\n
    3. A journal entry for the first month’s expense<\/td>\nDebit rent expense 1,000 \/ Credit prepaid expenses 1,000<\/td>\n<\/tr>\n
    4. Make the journal entry recur monthly until the end of the period<\/td>\nThe same entry is created automatically every month<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    Step 1: Create the prepaid expenses account<\/h2>\n

    There’s no default account for prepaid expenses, so create it once:<\/p>\n

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    1. Open Accounting<\/strong> \u203a Chart of Accounts<\/strong><\/a>.<\/li>\n
    2. Open Assets<\/strong> \u203a Current Assets<\/strong>, and click Add Account<\/strong>.<\/li>\n
    3. Choose the Account Type<\/strong>: Sub-Account<\/strong>.<\/li>\n
    4. Enter the Code<\/strong> and Name<\/strong> (such as: Prepaid Expenses \u2013 Rent), and make sure the Main Account<\/strong> is current assets and the Type<\/strong> is Debit<\/strong>.<\/li>\n
    5. Save.<\/li>\n<\/ol>\n
      \n

      \ud83d\udec8<\/span><\/p>\n

      Note:<\/strong> You can create a separate account for each type (prepaid rent, prepaid insurance\u2026) to track the balance of each one. You need the Manage Journal Accounts<\/strong> permission.<\/p>\n<\/div>\n

      Step 2: Record the payment with an expense<\/h2>\n
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      1. Open a New Expense<\/strong><\/a>.<\/li>\n
      2. Enter the Amount<\/strong> 12,000, the Date<\/strong> 01\/01\/2026, and the Treasury<\/strong>.<\/li>\n
      3. In Journal Account<\/strong>, choose Prepaid Expenses \u2013 Rent<\/strong> (not an expense account).<\/li>\n
      4. Add the landlord in Vendor<\/strong> or Supplier<\/strong>, attach the contract or receipt, and save.<\/li>\n<\/ol>\n\n\n\n\n\n\n
        Account<\/th>\nDebit<\/th>\nCredit<\/th>\n<\/tr>\n
        Prepaid Expenses \u2013 Rent<\/td>\n12,000.00<\/td>\n<\/td>\n<\/tr>\n
        Treasury<\/td>\n<\/td>\n12,000.00<\/td>\n<\/tr>\n
        Total<\/strong><\/td>\n12,000.00<\/strong><\/td>\n12,000.00<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
        \n

        \ud83d\udec8<\/span><\/p>\n

        Note:<\/strong> If the invoice has tax, choose the tax in the expense so its amount is recorded in the purchase tax account and appears in the tax return.<\/p>\n<\/div>\n

        Step 3: The journal entry recognizing the first month’s expense<\/h2>\n
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        1. Open Add Journal<\/strong><\/a> from journal entries.<\/li>\n
        2. Date: the last day of the first month (31\/01\/2026) or its first day, depending on your accounting policy.<\/li>\n
        3. Description: “Charging January’s rent expense from prepaid expenses”.<\/li>\n
        4. First line: Rent Expense<\/strong> (an account under expenses) \u2014 Debit<\/strong> 1,000.<\/li>\n
        5. Second line: Prepaid Expenses \u2013 Rent<\/strong> \u2014 Credit<\/strong> 1,000.<\/li>\n
        6. Click Save<\/strong> (so the journal entry is issued, not a draft).<\/li>\n<\/ol>\n\n\n\n\n\n\n
          Account<\/th>\nDebit<\/th>\nCredit<\/th>\n<\/tr>\n
          Rent Expense<\/td>\n1,000.00<\/td>\n<\/td>\n<\/tr>\n
          Prepaid Expenses \u2013 Rent<\/td>\n<\/td>\n1,000.00<\/td>\n<\/tr>\n
          Total<\/strong><\/td>\n1,000.00<\/strong><\/td>\n1,000.00<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

          Step 4: Make the journal entry recur monthly<\/h2>\n
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          1. Open the journal entry you created in step 3, and click Make Recurring<\/strong>.<\/li>\n
          2. Enter the details:<\/li>\n<\/ol>\n