Enter Prepaid Expenses and Amortising Costs

Here is a simple method using prepaid expenses in Jim2 to ensure your Profit & Loss report reflects a more accurate monthly expense allocation.

This payment covers June, July, and August, Instead of showing $900 in June, we want to show $300 per month.

Step 1 – When processing the invoice:

Add an expense order, and select the Prepaid Expenses account, using Tax Code1. This ensures the initial transaction posts to the Balance Sheet, not the P&L.

Debit the 1-1501 Prepaid Expenses account – $900

Credit the 2-XXXX Creditors/Bank account – $900

Step 2 – Monthly amortisation journal:

At the end of each of the 3 months, post the following journal:

Debit the 6-1501 Subscription Expense account – $300

Credit the 1-1501 Prepaid Expenses account – $300

When entering these journals, use tax code X as these are internal accounting only.

This gradually moves the cost from the Balance Sheet to the Profit & Loss over the 3-month period.

This payment covers July to June, and would be amortised at $100 per month.

Initial journal on invoice:

Debit the 1-1500 Prepaid Expenses account – $1,200

Credit the 2-XXXX Creditors/Bank account – $1,200

Monthly journal entry for 12 months:

Debit the 6-XXXX Insurance Expense account – $100

Credit the 1-1500 Prepaid Expenses account – $100

Note

▪Ensure the Prepaid Expenses GL account is set up in your chart of accounts (if not already).

▪The same process applies to any upfront payment that needs to be spread across future periods (e.g. subscriptions, licences, insurance, etc.).