JE-117 Mar 2026Manualposted
Pay the annual subscription.
| Account | Dimensions | Debit | Credit |
|---|---|---|---|
| 1320 Prepaid software | 18,000 US Dollar | ||
| 1000 Cash | 18,000 US Dollar | ||
| Totals | 18,000 US Dollar | 18,000 US Dollar | |
Balanced.
Journal entry for a prepaid software subscription
When an annual software subscription is paid up front, debit Prepaid software and credit Cash (or Accounts payable). Each month-end, debit Software expense and credit Prepaid software for the days of service used that month.
- Annual price
- $18,000
- March stub
- $739.73
- Month-ends in the term
- 13
- Entity
- Illustrative company
- Basis
- Accrual
- Currency
- USD
- Period
- March 2026 – March 2027
The worked example
On March 17, 2026 the company pays $18,000 for a year of a design tool, the term starting that day. Released by days of service, March carries a $739.73 stub, a full month like April carries $1,479.45, and the term touches 13 month-ends.
Transaction · March 17, 2026
Adjusting entry · March 31, 2026
JE-231 Mar 2026Adjustingposted
Release March's days of service.
Journal entry JE-2, 2 lines Account Dimensions Debit Credit 6300 Software expense 739 US Dollar and 73 cents 1320 Prepaid software 739 US Dollar and 73 cents Totals 739 US Dollar and 73 cents 739 US Dollar and 73 cents Balanced.
Prepaid software, released by days of service
Computed by the same tested function the toolbelt runs. The last period absorbs any rounding, so the schedule sums to the cent.
| Month | Software expense | Prepaid remaining |
|---|---|---|
| Mar 2026 | 739.73 | 17,260.27 |
| Apr 2026 | 1,479.45 | 15,780.82 |
| May 2026 | 1,528.77 | 14,252.05 |
| Jun 2026 | 1,479.45 | 12,772.60 |
| Jul 2026 | 1,528.77 | 11,243.83 |
| Aug 2026 | 1,528.77 | 9,715.06 |
| Sep 2026 | 1,479.45 | 8,235.61 |
| Oct 2026 | 1,528.77 | 6,706.84 |
| Nov 2026 | 1,479.45 | 5,227.39 |
| Dec 2026 | 1,528.77 | 3,698.62 |
| Jan 2027 | 1,528.77 | 2,169.85 |
| Feb 2027 | 1,380.82 | 789.03 |
| Mar 2027 | 789.03 | 0.00 |
What the entries do to the accounts
Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.
| Account | Debit | Credit |
|---|---|---|
| 1000 Cash | 18,000 US Dollar | |
| 1320 Prepaid software | 17,260 US Dollar and 27 cents | |
| 6300 Software expense | 739 US Dollar and 73 cents | |
| Totals | 18,000 US Dollar | 18,000 US Dollar |
Why it is booked this way
An annual plan paid in advance is a prepaid service contract. It is consumed day by day across the subscription term, and the expense follows the service rather than the invoice.
Subscriptions rarely start on the 1st. Releasing by days of service splits the term at each calendar month-end, which is what a reviewer will recompute; the final stub absorbs the rounding so the schedule sums to the price exactly.
Common mistakes
- Expensing an annual tool in the month it renews, so one month of the P&L carries a year of cost.
- Releasing twelve equal slices from a mid-month start, so the schedule ends a month early.
- Capitalizing a SaaS subscription as an intangible asset. It is a service contract — a prepaid, not software you own.
Questions
- Do I have to prepay every annual subscription?
- Many companies set a threshold — often a few thousand dollars — below which annual subscriptions are expensed when paid. That is a materiality policy, not a GAAP rule, and it should be written down and applied the same way every time.
- Why does my schedule have thirteen months?
- A subscription that starts mid-month spans thirteen month-ends. Releasing by days of service puts a short stub in the first and last months; releasing evenly over twelve months is simpler and usually immaterial. Pick one policy.
Terms on this page
Work with this entry
The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.
- Prepaid & deferred releaseA premium paid on the 17th does not release in twelve equal slices. Day-weighted, or even — your call. Put your own figures in and get the schedule behind this entry.Tool
- Prepaid expenses, explained for foundersCash paid before you use what it buys, like a year of software or insurance. It's an asset that runs down month by month.Doc
- Prepaid expense vs accrued expenseA prepaid expense is cash paid before the cost is used, an asset; an accrued expense is a cost used before it is paid or billed, a liability — the same timing difference running in opposite directions.Compare
- Journal entry for prepaid insuranceWhen the premium is paid, debit Prepaid insurance and credit Cash. At each month-end, debit Insurance expense and credit Prepaid insurance for the month's share of the policy, until the prepaid balance reaches zero.Entry
- Journal entry for prepaid rentWhen rent is paid in advance, debit Prepaid rent and credit Cash. At each month-end, debit Rent expense and credit Prepaid rent for the month the space was used.Entry
- Journal entry for credit card expensesFor each company card charge, debit the expense it paid for and credit Credit card payable. When the statement is paid, debit Credit card payable and credit Cash.Entry
- ScheduleTableOne shell, seven presets. Prepaids through debt.Component
- SchedulePreviewWhat the schedules will post, before they post.Component
An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.