How Do I Record a Payment Today For An Expense That Will Be Incurred Next Month?

I am prepaying an expense, i.e. I am paying a bill today for an expense that will actually be incurred next month. If I enter the transaction with next month's date, it won't show up when I do the reconciliation report this month for the account. If I enter the transaction with today's date, it won't be reflected in next month's expense report.

Answers

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    This is a bit of "inside baseball" talk, but what you are paying is a "cost" - that is a debit of some sort which might be account for as an "asset" (balance sheet entry) or an "expense"  (income and expense statement).
    In this case you payment results in an asset - a "prepaid" of some sort - and you expect that the prepaid will actually be expensed at some later date.  An example of this could be paying your entire year's homeowners insurance at the beginning of the year and then expensing (decreasing the prepaid Account and increasing an insurance expense Category) by 1/12th each month.
    So create an asset Account called "Prepaid [Whatever it is]" and record this cost in that Account for this month.  Next month zero out the balance in that Account with the offset to whatever Category is appropriate.  Cash is correct, asset is correct, next month's expense will be correct.
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