1. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 1 7100. General Accounting Procedures, 7172 Accrual of Prepaid Expenses A. The Purpose of This Policy Prepaid expenses are those expenses paid before we receive the goods or services. For the accrual method of accounting, it is important to record these expenses accurately. Continue ►

2. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 2 7100. General Accounting Procedures, 7172 Accrual of Prepaid Expenses B. Procedure for Prepaid Expenses Prepaid expenses may include advance payments on insurance, rent, printed materials, maintenance contracts, franchise fees, etc. Prepaid expenses are assets. An asset account is established for all major prepaid expense categories. To post a prepaid expense at the time of the payment, the accountant posts the following Balance Sheet transactions: Balance Sheet Debit: The prepaid expense asset account Credit: The bank account from which the payment was made Continue ►

3. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 3 7100. General Accounting Procedures, 7172 Accrual of Prepaid Expenses B. Procedure for Prepaid Expenses (cont.) At the end of every financial period, check to see if any part of any prepaid expense has been consumed by receiving the goods or services. For example, if a prepayment was made for a six-month maintenance contract, each month one-sixth of the amount would be consumed by our use of the service. When we use the service or receive the goods, post the transaction as follows: Debit: The expense account Credit: The prepaid expense asset account End

4. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 4 7100. General Accounting Procedures, 7172 Accrual of Prepaid Expenses