| ASOP: |
Prepaid expense can be booked initially when such an expense is incurred or it can be reclassified monthly on an AV as shown below:
Automated Entry
(through a Purchase Order) |
Object Code |
Object Code Name |
Debit |
Credit |
| 4xxx/5xxx |
Expense |
$12,000 |
|
| 8000 |
Cash |
|
$12,000 |
AVAD
Transaction
to reclassify expense
as a prepaid Expense |
Object Code |
Object Code Name |
Debit |
Credit |
| 8400 |
Prepaid Expense |
$12,000 |
|
| 4xxx/5xxx |
Expense |
|
$12,000 |
For example, if an annual service contract for $12,000 is paid in Period 01 for services to begin in Period 02, prepaid expense would be set up initially or reclassified as above in July.
Starting Period 02, an entry is made each month to recognize the expense realized for the month and reduce the balance in prepaid expenses as follows:
Period 02 Amount Calculation = (1/12 months) * $12,000 = $1,000
Period 02
AVAD Entry -
Recognition of
expense for August |
Object Code |
Object Code Name |
Debit |
Credit |
| 4xxx/5xxx |
Expense |
$1,000 |
|
| 8400 |
Prepaid EXpense |
|
$1,000 |
Period 03
AVAD Entry -
Recognition of
expense for September |
Object Code |
Object Code Name |
Debit |
Credit |
| 4xxx/5xxx |
Expense |
$1,000 |
|
| 8400 |
Prepaid EXpense |
|
$1,000 |
Period 04
AVAD Entry -
Recognition of
expense for October |
Object Code |
Object Code Name |
Debit |
Credit |
| 4xxx/5xxx |
Expense |
$1,000 |
|
| 8400 |
Prepaid EXpense |
|
$1,000 |
Period 05
AVAD Entry -
Recognition of
expense for November |
Object Code |
Object Code Name |
Debit |
Credit |
| 4xxx/5xxx |
Expense |
$1,000 |
|
| 8400 |
Prepaid EXpense |
|
$1,000 |
Period 06
AVAD Entry -
Recognition of
expense for December |
Object Code |
Object Code Name |
Debit |
Credit |
| 4xxx/5xxx |
Expense |
$1,000 |
|
| 8400 |
Prepaid EXpense |
|
$1,000 |
And so on until the total $12,000 in prepaid expense is recognized as expense in the individual months.
|
