Handling Prepaid Expenses in AP

1. Enter your prepayments in AP as an invoice and expense account as the prepaid.

2. Pay this invoice through your normal check run or you can enter as manual check.

If you have a wire transfer as a prepayment and you want to enter that into AP as part of the check register, then use a fake check #. Make sure you keep a listing of your fake check numbers you are using.

The journal entry created for this transaction is:

Dr. Prepaid Expense

Cr. Cash

When the invoice comes through, you will enter the invoice and expense it as normal. However, you MUST change your cash account this time to Prepaid Expenses. You will need to enter a fake check number to pay this invoice.

By changing the cash account number to prepaid expense, you are creating the following effect to GL:

Dr. Expense

Cr. Prepaid Expense

Things to consider when using this method

If you rely on your cash screen (F3) in the Company File, this will count as two disbursements (first is the check for the prepayment and second is the fake check to clear off the invoice) on the screen even though it is doing the correct journal entry.