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ejkitty · Nov 5, 2009, 04:08 PM

I have created an excel spreadsheet to track prepaid expense and insurance write offs for our company. I have received an invoice from one of our insurance providers for auto coverage for about $5000, this is for 20% of the years premium and some other fees. We will be billed 9 other installments for the remaining premium throughout the year. They are indicating the years premium to be $20000 for 10-2009 - 10/2010. My question is when I enter this into my spreadsheet to determine the monthly write off amount do I enter the entire premimum amount of $20000 (senario 2) and write off that divided by 12 through out the coverage period (even though we haven't paid that entire amount yet) or do I enter the $5000 (senario 1) divide this by 12 and write off that amount unitl we receive the next installment payment, then enter that amount and add it to the balance and gradually increase the writeoff amount as we receive the invoices?

ArcSine · Nov 5, 2009, 04:27 PM

Probably a couple or three ways you could go, but I think I'd opt for this approach...

1. Based on the initial estimate of 20K total expense for the year, every month I'd debit Insurance Expense and credit Prepaid for 1,667; this reflects that with each passing month you've incurred another month of expense.

2. Every time a premium payment is made, debit it to Prepaid.

3. Depending on the timing of the installment payments, you might conceivably have a net credit balance in Prepaid at the end of a month. Although I wouldn't bother, you could temporarily move that credit over to short-term payables for that month-end balance sheet.

4. If the 20K estimate proved correct, Prepaid would exactly zero out after the twelveth expense entry from (1) above. Of course it won't, and you'll have a little year-end adjustment to make, once the insurance company gives the final number for the year.

At any month end, the net debit or credit balance in Prepaid would show the economic reality that either you've paid more in premiums than you've incurred in expense to that point (debit); or you've had more expense than you've paid for, so far (credit).