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Forum -> Help with hosted flowlog -> should i have a prepaid expense group? and what is it exactly?  Resolved

Sep. 13, 2020 @ 09:18pm
should i have a prepaid expense group? and what is it exactly?
melrose's icon
posts: 5
joined: Nov. 02, 2018

I was reviewing the 'CoA Example: SMB - Accrual Method' documentation and noticed the prepaid expense group. Of course I understand what prepaid expenses means in a general sense, but not sure why it would be necessary in a chart of accounts. I would assume you could just create the necessary expense accounts in the expenses group, or something?

Also I know I'm referencing the Accrual CoA's, but could a prepaid expense group also belong in a cash method CoA? or just Accrual?

Sep. 14, 2020 @ 03:21am
flowlogEntity's icon
posts: 23
joined: Jan. 19, 2018

Well, the reason you would have a prepaid expenses account is if you have paid for something in advance, but haven't used the service up yet, that is like money in the bank, because you will not have to pay it later, and that's why the prepaid expense account(s) are considered assets.

When you use part of a prepayment, you decrease the prepaid expense account and increase the appropriate expense account (Auto Insurance for example).

So if you prepay your auto insurance for 6 months, you record that payment in the appropriate (or shared, singular) prepaid expense account, and then as you go through the 6 months, you adjust it each month as described above. This is a simplified example, and it can get more complicated that this, but for basic needs this is "The Just of It", to my understanding. You can do a web search for more complex scenarios, tax reporting rules, etc. Maybe in the future flowlog will add more features around stuff like this, if there is demand, in which case, we would have more support materials around this topic. I have added a "prepaid expenses" account to the Cash COA example, though the possibilities of what accounts one user could need could go on and on. This is one reason why the CoA examples are limited. We just wanted to demonstrate a little about what accounts might be in a CoA, not list all of them. Some accounting programs do that, and it's very confusing and daunting for new users to see so many seemingly conflicting accounts when first trying to learn.

You don't have to have a prepaid expenses group unless you have several different prepaid expense accounts and choose to break them out into their own group for organizational reasons.

Yes, you can have a prepaid expense account or group when using the cash method if you have any of those entries to make.

Also, the bills feature that is in live testing right now does not currently have any notion or handling of *prepaid* bills or invoices, so you will want to handle those manually using entries.

Sep. 14, 2020 @ 04:02am
melrose's icon
posts: 5
joined: Nov. 02, 2018

 That makes sense. I'm glad I asked.

Thanks, I'll go ahead and mark this thread resolved.