Recording Insurance Prepayments

I have just made a large payment for 12 months of insurance. I would like to space this over 12 months in the accounts which I think I can do with prepayments?

What would be the correct procedure for this?

Hi @Hactar

If I’ve understood correctly, you’ve received an invoice for 12 months worth of insurance, and paid this, but you’re looking to account for this over the life of the policy rather than a lump sum (therefore reducing profit each month rather then just the month the invoice was issued). Is that correct?

That is correct, yes.

Post the initial purchase invoice to a balance sheet nominal code (you could use “prepayments” or you could create a specific code under assets and liabilities for this case, e.g. “prepaid insurance”), then create a recurring journal to move one twelfth of the total from there to the “rent” P&L code each month (credit the asset code and debit the P&L code).

I would have like to use “prepayments” but I don’t seem able to post a purchase to that code. Having created a new one that will show as an asset on the balance sheet until it is all journaled out yes?

Yes, each journal will reduce the balance sheet asset and increase the P&L expense, until the whole amount is moved over by the year end.

Prepayments and accruals are normally used for year end adjustments only (to recognise things in the right year when they were/will be invoiced in the preceding/next one), so I guess it’s reasonable that they’re not available for invoices by default.

Excellent, thanks. This won’t create an issue at year end when there are still some outstanding payments will it?