Automate Prepaid Expense Amortization in Sage Intacct‑with Free Add-On
Nearly every company has prepaid expenses it must account for. There’s a free tool that will help you automate this process in Sage Intacct, but before we introduce it, a few definitions might be helpful.
What is prepaid expense amortization?
A prepaid expense is just what it sounds like—an expense that you pay in advance of receiving the goods or services. You then recognize the portion of the total expense during the period you actually incur it.
From an accounting standpoint, prepaid expenses are considered an asset on your books. Prepaid expense amortization is the method of accounting for the consumption of those prepaid expenses over time. With amortization, the amount of your prepaid expense is gradually reduced to zero, following an amortization schedule. The expense is then transferred to your profit and loss statement for the period during which you “use up” the accrual.
Insurance is a classic examples of a prepaid expense, as it is typically paid for in advance. Say you pay $12,000 for an annual insurance policy. You would record a current asset of $12,000 at the time of payment to represent this prepaid amount. In each month of the 12-month policy, you would recognize an expense of $1,000 and draw down the prepaid asset account by this same amount. Other common examples of prepaid expenses are interest, equipment paid for before use, rent, salaries or taxes.
While this is a common accounting practice, companies typically calculate the amortization using spreadsheets, and then create the appropriate journal entries. Not too difficult for one or two such transactions, but with dozens—or even hundreds—of prepaid expenses to amortize, the manual workload becomes cumbersome and time consuming.
Meet your free tool
If yours is one of the companies with several prepaid expenses to account for, there’s a free (yes, free) add-on for Sage Intacct that automates the task, doing the heavy lifting for you. Its (not particularly original, but certainly descriptive) name is Prepaid Expense Amortization, and here’s a quick snapshot of what it can do.
- Capitalize expenses right from AP invoices: Simply enter the expense invoice and the add-on will automatically capture amortization information such as contract start and end dates directly from bills.
- Set flexible amortization rules: You set the rules to expense your assets over time using straight-line or all at once on a set future date.
- Automated journal entries: Prepaid Expense Amortization will automatically create journal entries for asset creation and expense amortization.
To add even more power and functionality, you can tag your expenses with dimensions such as location, department and project. Plus, you can view a complete picture of your amortized assets at any time by drilling down from the amortization schedules to associated journal entries and AP bills.
Prepaid Expense Amortization is yours for the taking. Just contact us and we’ll place the no-charge order and then schedule one of our Sage Intacct consultants to work with you on the setup and implementation.