Entering Prepaid Expenses

Prepaid expenses can include items such as prepaid inputs (seed, chemical, fertilizer, etc.) or other expenses (insurance, property taxes, etc.).

The best practice is to track each category of prepayment in its own account in the asset section.  For example, if you purchased prepaid chemical, and then prepaid fuel, you would have a prepaid account for chemical separate from the prepaid account for fuel.

This can be setup in your chart of accounts.

Once you have structured your prepaid accounts, you can enter your payments.  In the transaction screen set up your withdrawal as you normally would.

Change your Type to A+ Asset Purchase.  From your account list, you can select the appropriate prepaid account.  Enter a description, and the total of the prepayment.

If you have more than one category being prepaid, you will have a separate line for each.

Save your payment when you are done.

When you pick up product, you will want to make sure to make an entry to use this prepaid amount.  In your transaction screen, keep your type as Withdrawal, and fill in the top of the screen.  Select your main bank account, even though no money will be withdrawn.

On your first line, claim your expense as normal, including any applicable GST/HST.  Create a second line and set the type to A- Asset Sale.  Select the appropriate prepaid account and enter the same total to offset the first line.

The total of this transaction is 0.00, so no money will be withdrawn from your bank account.  Instead, what will happen is you will be able to claim your expense and reduce the amount outstanding as a prepaid item in your assets.  Save this transaction.

Last updated on October 22, 2019 by FCC AgExpert