# Prepaid and accrual schedules

> Lesson 9's adjustments, run forward: the insurance released to zero, a mid-month prepaid on two conventions, and September's power accrual reversed and trued up when the bill arrives.

Source: https://lopifi.com/learn/prepaid-and-accrual-schedules
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

---

**How do you keep a prepaid expense schedule and reverse an accrual?** Lesson 9's adjustments, run forward: the insurance released to zero, a mid-month prepaid on two conventions, and September's power accrual reversed and trued up when the bill arrives.

Lesson 9 made September's adjustments once. In a real set of books each of them is the first row of a schedule that runs until the balance is gone: a [prepaid](https://lopifi.com/md/glossary/prepaid-expense) released month after month, an [accrued expense](https://lopifi.com/md/glossary/accrued-liability) that meets its bill. The schedule is the [Evidence](https://lopifi.com/md/glossary/evidence) behind every month's entry, and its remaining balance is what the balance sheet must show.

## The insurance, all twelve months

| Month | Released to expense | Remaining prepaid |
| --- | --- | --- |
| September 2026 | 600 | 6,600 |
| October 2026 | 600 | 6,000 |
| November 2026 | 600 | 5,400 |
| December 2026 | 600 | 4,800 |
| January 2027 | 600 | 4,200 |
| February 2027 | 600 | 3,600 |
| March 2027 | 600 | 3,000 |
| April 2027 | 600 | 2,400 |
| May 2027 | 600 | 1,800 |
| June 2027 | 600 | 1,200 |
| July 2027 | 600 | 600 |
| August 2027 | 600 | 0 |

JE-3's policy as a schedule. Row 1 is AJE-1; every row is one month's $600 entry, and the last leaves exactly nothing.

*[Figure: prepaid expense]*

The policy as it runs: $7,200 paid in September, released over twelve months.

At every month end the schedule's remaining balance is [tied out](https://lopifi.com/md/glossary/tie-out) to 1400 Prepaid insurance. At October 31 that's $6,000. If the ledger says anything else, a release was missed or posted twice, and the schedule says which month.

| 1400 Prepaid insurance | October |
| --- | --- |
| Opening balance, October 1 | 6,600 |
| Paid in the month | 0 |
| Released to expense (OCT-12) | (600) |
| Closing balance, October 31 — agrees to the schedule | 6,000 |

1400 Prepaid insurance, rolled forward through October.

## A prepaid that starts mid-month

**Northwind — A year of software, bought on the 15th.** On October 15 Northwind pays $1,200 for a year of inventory software. Released evenly it would be $100 a month for twelve months, October included, though October only had half a month of it. Released by the day, October takes $55.89 for the days from the 15th to the 31st, and the schedule needs thirteen month-ends to finish next October.

| Month | Evenly by month | By days of service |
| --- | --- | --- |
| October 2026 | 100 | 55.89 |
| November 2026 | 100 | 98.63 |
| December 2026 | 100 | 101.92 |
| January 2027 | 100 | 101.92 |
| February 2027 | 100 | 92.05 |
| March 2027 | 100 | 101.92 |
| April 2027 | 100 | 98.63 |
| May 2027 | 100 | 101.92 |
| June 2027 | 100 | 98.63 |
| July 2027 | 100 | 101.92 |
| August 2027 | 100 | 101.92 |
| September 2027 | 100 | 98.63 |
| October 2027 | 0 | 46.02 |

The same prepaid on two conventions. Both total exactly what was paid; they put it in different months.

**Evenly by month**
- Pro: Simple to compute and to check
- Pro: The same figure every month
- Con: Charges a full month for a part month
- Con: The schedule's months don't match the service period's
- Best for: Small prepaids where a few days either way is immaterial

**By days of service**
- Pro: Expense follows the days actually covered
- Pro: What a reviewer will recompute
- Con: A stub at each end
- Con: One more month-end on the schedule
- Best for: Policies and contracts that start mid-month, or anything material

Which convention a schedule uses is a policy. State it, and use it every time.

> **Northwind's policy.** Prepaids that start on the first of a month release evenly; any that start mid-month release by the day. The insurance started on September 1, so it stays even. The software started on the 15th, so OCT-12 takes the day-count figure.

## The accrual meets the bill

September accrued $450 of power nobody had billed (AJE-3). On October 1 Northwind posts a [reversing entry](https://lopifi.com/md/glossary/reversing-entry) that cancels it. On October 9 the real bill arrives for $472.80, and it's booked like any other bill, straight to utilities expense. The reversal already took the estimate back out, so October carries only the difference, a $22.80 [True-up](https://lopifi.com/md/glossary/true-up).

| 6500 Utilities expense | October |
| --- | --- |
| Reversal of September's accrual (OCT-1) | (450) |
| September's bill, booked when it arrived (OCT-6) | 472.80 |
| Net effect on October: the true-up | 22.80 |

6500 Utilities expense in October, from September's power alone. October's own power is a new accrual at October 31.

**Wrong:** Oct 9  Dr 6500 472.80 / Cr 2000 472.80
2200 still shows 450

**Right:** Oct 1  Dr 2200 450 / Cr 6500 450
Oct 9  Dr 6500 472.80 / Cr 2000 472.80

Without the reversal, September's power is expensed twice — once as the accrual, once when the bill is coded — and accrued liabilities keeps a balance nobody is owed.

> An estimate replaced by the actual figure is a change in estimate, recognized in the period it happens. It is not an error, and September is not reopened for it.

— [ASC 250](https://asc.fasb.org/250/tableOfContent), Accounting Changes and Error Corrections

1. **List what's open.** Prepaids: every invoice paid ahead. Accruals: every cost used and not yet billed — utilities, contractors, professional fees, interest.
2. **Post the month's row.** Release each prepaid by its own convention, and estimate each accrual from the best evidence on hand: a meter, a contract, last month's bill.
3. **Tie the schedule to the ledger.** The schedule's remaining balance must equal the account, to the cent. A difference is a missed or doubled row.
4. **Set the reversals.** Accruals reverse on the first day of the next month, so the real bills can be coded normally.
5. **Flag what's gone stale.** A prepaid past its service end with a balance left, or an accrual carried three months with no bill, is an exception to chase.

Every month end, for every schedule.

> **A schedule isn't a calculation done once. It's the evidence for every month's entry, and its balance is the balance sheet's.**

## Where this lesson's rules come from

- [ASC 340-10](https://asc.fasb.org/340/tableOfContent) — Other Assets and Deferred Costs — prepaid expenses (codification)
- [ASC 405](https://asc.fasb.org/405/tableOfContent) — Liabilities (codification)
- [ASC 250](https://asc.fasb.org/250/tableOfContent) — Accounting Changes and Error Corrections (codification)
- [Wikipedia, “Accrual”](https://en.wikipedia.org/wiki/Accrual) — Accrual (reference)
- [Wikipedia, “Deferral”](https://en.wikipedia.org/wiki/Deferral) — Deferral (reference)
- [Wikipedia, “Adjusting entries”](https://en.wikipedia.org/wiki/Adjusting_entries) — Adjusting entries (reference)

## Read further

- https://lopifi.com/md/journal-entries/prepaid-insurance
- https://lopifi.com/md/journal-entries/prepaid-software-subscription
- https://lopifi.com/md/journal-entries/prepaid-rent
- https://lopifi.com/md/journal-entries/accrued-expenses
- https://lopifi.com/md/differences/prepaid-expense-vs-accrued-expense
- https://lopifi.com/md/differences/reversal-vs-reversing-entry
- https://lopifi.com/md/differences/accrued-expenses-vs-accounts-payable
- https://lopifi.com/md/differences/accrual-vs-deferral
- https://lopifi.com/md/startups/accrued-expenses-vs-accounts-payable
- https://lopifi.com/md/accounting/prepaids
- https://lopifi.com/md/accounting/accrued-expenses
- https://lopifi.com/md/tools/amortize
- https://lopifi.com/md/docs/domain/04-schedules-and-accruals

- **Track:** [Accounting](https://lopifi.com/md/learn/accounting)
- **Lesson:** Lesson 15 of 17 — 13 min
- **Terms taught:** [Prepaid expense](https://lopifi.com/md/glossary/prepaid-expense), [Accrued liability](https://lopifi.com/md/glossary/accrued-liability), [Reversing entry](https://lopifi.com/md/glossary/reversing-entry), [True-up](https://lopifi.com/md/glossary/true-up), [Roll-forward](https://lopifi.com/md/glossary/roll-forward), [Tie-out](https://lopifi.com/md/glossary/tie-out), [Straight-line](https://lopifi.com/md/glossary/straight-line), [Deferral](https://lopifi.com/md/glossary/deferral), [Accrual](https://lopifi.com/md/glossary/accrual), [Evidence](https://lopifi.com/md/glossary/evidence)
- **Previous:** [Deferred revenue, rolled forward, Accounting · Lesson 14](https://lopifi.com/md/learn/revenue-recognition-and-deferred-revenue/deferred-revenue-roll-forward)
- **Next:** [Fixed assets and depreciation, Accounting · Lesson 16](https://lopifi.com/md/learn/fixed-assets-and-depreciation)
- **The course:** https://lopifi.com/md/learn