It’s important to make sure your accounting data is accurate and actionable. However, in business, there are often purchases you make where you pay one time per year, but use the service every month, throughout the year.
In today’s episode, Bernard Roesch talks about how to appropriately track annual expenses within QuickBooks. For more information, visit www.MissionBusinessPodcast.com.
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Why Track Annual Purchases Monthly
If you make a purchase in January for a service that is used throughout the entire year, this expense should not only affect January’s profitability.
- The expense should be spread out evenly over the lifetime of the service such as a monthly expense throughout the year.
- This ensures that the profitability of your business is accurate throughout the entire year, rather than having a single large expense in January.
How To Record Annual Expenses As Monthly Within QuickBooks
Using the example of an insurance bill that you pay once per year, below are the steps on how to record an annual expense on a monthly basis.
- Record the expense as a bill like you normally would within QuickBooks. However, rather than recording the bill to a normal insurance expense account, record it to a prepaid insurance balance sheet asset account.
- This gets the expense into QuickBooks, but does not log it as an expense that affects profitability yet.
- On a monthly basis, deduct that month’s expense from prepaid insurance balance sheet account to the insurance expense account. You can do this by manually logging the transaction monthly, or by setting up recurring transactions to occur over the time period that you are trying to effect.
- This will ensure QuickBooks shows the expense on a monthly basis based on those separate transactions entered, rather than a single expense in the month the bill was paid.
- Keep in mind that the credit card or bank account where you paid the bill from will still have the accurate balance and show that the money left the account since you did pay the bill.
Need Help Configuring QuickBooks
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