Prepaid Expenses

Track upfront payments like insurance and software licenses with automatic amortization.

The Prepaid Expenses building block handles payments made in advance. The expense is automatically spread across the coverage period on your Income Statement.

Video Tutorial

Prepaid Expenses Tutorial

Prepaid Expenses Overview

The Prepaid Expenses page shows all your prepaid expenses — the amount paid, payment date, and how long the payment covers. Common examples include annual insurance premiums, software licenses, and rent deposits.

You can expand each entry for more detail, showing how far along you are in the coverage period and the monthly expense amount in relation to your total prepaid expenses.

Prepaid vs. Regular Expenses
A monthly expense is recognized when incurred. A prepaid expense is paid upfront but recognized over time as you receive the benefit.

Creating a Prepaid Expense

To add a prepaid expense:

  1. Navigate to Building Blocks → Prepaid Expenses in the sidebar
  2. Click + Add Expense
  3. Select an Expense Category from your list of Operating Expenses
  4. Enter the coverage period and the amount paid
  5. Profitual automatically calculates:
    • Term Length: Based on your dates
    • Term Remaining: Based on current date
    • Monthly Expense: Total divided by term
  6. Optionally enter details for tracking vendors and invoices
  7. Click “Save”
Detail: Annual liability coverage
Vendor: Acme Insurance Co.
Invoice: INV-2024-001
Expense Category: Insurance
Coverage Start: January 2024
Coverage End: December 2024
Pre-Tax Cost: $12,000

The expense is spread evenly across the coverage period.

How Prepaid Expenses Work

Payment vs. Recognition

January 1: Pay $12,000 for annual insurance
- Cash decreases by $12,000
- Prepaid asset increases by $12,000

Each month (Jan-Dec):
- Prepaid asset decreases by $1,000
- Insurance expense recognized: $1,000

Timeline Example

Month Cash Impact Expense Prepaid Asset
Jan -$12,000 $1,000 $11,000
Feb $0 $1,000 $10,000
Mar $0 $1,000 $9,000
… … … …
Dec $0 $1,000 $0

Impact on Financial Statements

Balance Sheet

  • Prepaid expenses are current assets
  • Decrease monthly as expense is recognized

Income Statement

  • Expense recognized evenly over benefit period
  • Smoother P&L than if expensed all at once

Cash Flow

  • Full payment hits cash flow when paid
  • Expense recognition is non-cash adjustment
Cash planning
Large prepayments create cash flow spikes. Plan for annual renewals in your cash forecast.

Common Prepaid Expenses

Expense Type Typical Term Payment Timing
Insurance Annual Start of policy
Rent 1-2 months Lease signing
Software (annual) 12 months Subscription start
Conferences One-time Registration
Retainers Monthly/Quarterly Period start

When to Use Prepaid Blocks

Use prepaid expense blocks when:

  • Payment is significantly ahead of the benefit period
  • The amount is material to your financials
  • You want accurate monthly P&L

Use regular expense blocks when:

  • Payments align with benefit periods
  • Amounts are small
  • Simplicity is more important

Planning Prepaid Expenses

Annual Renewals

Track renewal dates to anticipate cash needs:

Q1 Renewals:
- Insurance: $12,000 (January)
- Software bundle: $5,000 (March)

Total Q1 prepayments: $17,000
Prepayment risk
If a vendor goes out of business, you may lose prepaid amounts. Consider this risk for large prepayments to smaller vendors.