Deferred Expense

Deferred Expense (prepaid expense) is an expense paid in advance for goods or services to be received in the future. In accrual accounting, expenses are recognized when incurred, not when paid.

When to Use Deferred Expense

• Annual insurance premiums paid upfront
• Prepaid rent for multiple months/years
• Annual software license fees
• Prepaid maintenance contracts

Setting Up Deferred Expense

1. Go to Accounting > Deferred Expense and click New.
2. Select the Company and the relevant Account.
3. Link the Purchase Invoice containing the prepaid expense.
4. Set the Service Start Date and Service End Date.
5. Click Save.

How It Works

For a SAR 24,000 two-year insurance policy:

On Payment:

• Debit: Prepaid Insurance (Asset) SAR 24,000
• Credit: Bank SAR 24,000

Each Month (for 24 months):

• Debit: Insurance Expense SAR 1,000
• Credit: Prepaid Insurance (Asset) SAR 1,000

This spreads the expense recognition over 24 months, matching the expense to the period benefited.

Process Deferred Accounting

Use the Process Deferred Accounting tool to automatically book deferred expense entries each period.

Related Topics

• Deferred Revenue
• Process Deferred Accounting
• Purchase Invoice