# Prepaid expenses schedule: monthly amortization template

[Home](/) / [Checklists](/checklists) / [Month-end close](/checklists/month-end-close) / Prepaid expenses schedule

By [Arthur Teboul](/authors/arthur-teboul), Founder, DokuTrak. Published 2026-11-02, updated 2026-11-02.

> **In brief:** A prepaid expenses schedule lists each cost paid in advance, such as an annual insurance policy, with its service period, the monthly amount to expense and the balance left. At month-end its total remaining balance should equal the prepaid expenses account on the balance sheet.

## The checklist: Prepaid expenses schedule checklist

Use it at each close to keep the prepaid schedule complete and tied to the ledger. Lines with a document name what to request from the client.

### Documents that open a row

- [ ] Insurance policy declarations page: Shows the premium and the coverage start and end dates.
- [ ] Annual software or subscription invoice: Must print the service period, not only the charge date.
- [ ] Lease, for rent paid ahead: Months covered by the advance payment.
- [ ] Retainer or deposit agreement: What the payment buys and when it is used.
- [ ] Proof of payment: Bank or card statement line, or the paid receipt.

### Fill the row

- [ ] Vendor, description and document number
- [ ] Payment date and amount paid
- [ ] Service start and end dates from the document
- [ ] Months covered and monthly amount: Example: $12,000 policy, March 1 to February 28 = 12 months x $1,000.
- [ ] Monthly columns and remaining balance: Example above: $10,000 left after April.
- [ ] Mid-month policy written in the header: Prorate by days, or start in the first full month.

### Post and tie out

- [ ] Book each new prepaid to the prepaid account: Dr Prepaid expenses / Cr Cash or Accounts payable.
- [ ] Post the month’s amortization: Dr Insurance, Software or Rent expense / Cr Prepaid expenses.
- [ ] Compare the schedule total with the ledger balance: Difference must be zero at sign-off.
- [ ] Scan the month’s bills for new prepaids: Any bill covering future months gets a row.

### Exceptions and year-end

- [ ] Close rows for cancelled policies: Refund credits prepaid; the unrefunded rest goes to expense that month.
- [ ] Expense items under the firm’s materiality floor: Write the floor on the schedule.
- [ ] Flag large prepaids paid near year-end for the tax preparer: They may qualify for the 12-month rule.

Download: [PDF](https://dokutrak.com/downloads/pseo-v2/f5-checklists/month-end-close/prepaid-expenses-schedule.pdf) · [Word](https://dokutrak.com/downloads/pseo-v2/f5-checklists/month-end-close/prepaid-expenses-schedule.docx) · [Excel tracker](https://dokutrak.com/downloads/pseo-v2/f5-checklists/month-end-close/prepaid-expenses-schedule.xlsx)

## What goes on the schedule

A **prepaid expense** is a payment for a benefit the business will use in later months. It sits on the balance sheet as a current asset and turns into expense one month at a time.

Typical rows are an annual liability or property policy, a yearly software subscription, rent paid ahead, a retainer, or a deposit for an event months away. A monthly bill paid on time is not a prepaid, even if it is paid before the due date.

An expense paid in advance is generally deductible only in the year it applies to, unless it qualifies for the 12-month rule ([IRS Publication 538, Accounting Periods and Methods](https://www.irs.gov/publications/p538)). That is a tax rule; your book schedule follows the service period either way.

## The columns, and where each value comes from

Each value on a row should trace to a document. The IRS lists invoices and account statements among the papers that support an expense ([IRS Publication 583, Starting a Business and Keeping Records](https://www.irs.gov/publications/p583)). For a prepaid, the invoice or the policy also has to show the service period.

| Column | What to enter | Taken from |
| --- | --- | --- |
| Vendor and description | Who was paid and for what | Invoice or policy |
| Document reference | Invoice or policy number | Invoice or declarations page |
| Payment date and amount | When and how much left the bank | Bank or card statement |
| Service start and end | The period the payment covers | Invoice or policy, not the payment date |
| Months covered | Count of months in the period | Calculated from start and end |
| Monthly amount | Amount divided by months | Calculated |
| One column per month | That month’s charge to expense | Calculated |
| Remaining balance | What is still prepaid | Amount less charges to date |

## The journal entries

Two entries run the schedule. When the bill is paid, debit prepaid expenses and credit cash, or accounts payable if the bill was entered first.

Each month, debit the matching expense account and credit prepaid expenses for that month’s column total. Use a recurring entry for policies with equal charges, and check it against the schedule rather than trusting it blindly. The full set of monthly entries is on [month-end accruals](/checklists/month-end-close/journal-entries).

## Mid-month starts and cancellations

Pick one policy for coverage that starts mid-month and write it in the header of the schedule. You can prorate by days in the first month, or start the charge in the first full month. Either works if it is applied the same way to every row.

When a policy or subscription is cancelled, credit any refund to prepaid expenses. Whatever balance is left and not refunded goes to expense in the month of the cancellation, and the row closes at zero.

A **materiality floor** is a dollar amount below which a prepaid is expensed when paid instead of scheduled. Record it on the sheet so the reviewer knows why a small annual bill is not on it.

## Tie the schedule to the balance sheet

The **tie-out** is the row at the bottom that compares the schedule’s total remaining balance with the prepaid expenses account in the ledger. The difference should be zero before you sign off the month.

A difference usually means a new prepaid was booked straight to expense, or a charge was posted twice. Before the close, scan the month’s bills for any that cover future months and add a row for each. The [balance sheet reconciliation checklist](/checklists/month-end-close/balance-sheet-reconciliation) treats this account like any other balance that needs proof.

## The 12-month rule for tax

For tax, the regulation says a taxpayer need not capitalize an amount paid for a benefit that does not extend beyond the earlier of 12 months after the benefit starts or the end of the tax year after the payment ([26 CFR 1.263(a)-4, the 12-month rule in paragraph (f)](https://www.law.cornell.edu/cfr/text/26/1.263(a)-4)). Such a prepaid may be deductible when paid, even though the books spread it. For an accrual-method client, the economic performance rules also apply ([IRS Publication 538, Accounting Periods and Methods](https://www.irs.gov/publications/p538)).

The same rule appears in IRS Publication 538, which adds that switching to it, if you have not been using it, needs IRS approval as a change in accounting method ([IRS Publication 538, Accounting Periods and Methods](https://www.irs.gov/publications/p538)). That choice belongs to the tax preparer, so flag any large prepaid near year-end for them.

## Questions people ask

### What is a prepaid expenses schedule?

It is a worksheet that lists each cost paid in advance with its service period, the amount to expense each month and the balance left, and ties that balance to the ledger.

### Are prepaid expenses current assets?

Yes, when the benefit is used within the next year, which covers most small-business prepaids such as annual insurance and software. A longer prepayment can be split between current and non-current.

### How do I handle a prepaid that starts mid-month?

Prorate by days in the first month, or start the charge in the first full month. Choose one method, write it on the schedule and use it for every row.

### Is there a prepaid expenses schedule template in Excel?

Yes. The schedule on this page downloads as Excel, Word or PDF, with the columns, the monthly entries and the tie-out row.

**Not advice.** This page is general information, not tax, legal or HR advice. Rules change: check the cited source and ask your own professional before you rely on it. Last reviewed October 25, 2026.

## Sources

- [26 CFR 1.263(a)-4, the 12-month rule in paragraph (f)](https://www.law.cornell.edu/cfr/text/26/1.263(a)-4): A taxpayer is not required to capitalize amounts paid for a benefit that does not extend beyond the earlier of 12 months after it begins or the end of the following tax year.
- [IRS Publication 538, Accounting Periods and Methods](https://www.irs.gov/publications/p538): An expense paid in advance is deductible only in the year it applies to unless it qualifies for the 12-month rule; starting to use the rule needs IRS approval.
- [IRS Publication 583, Starting a Business and Keeping Records](https://www.irs.gov/publications/p583): Supporting documents for expenses include invoices, account statements and canceled checks.

## More on this topic

- [Month-end accruals](/checklists/month-end-close/journal-entries)
- [Balance sheet reconciliation checklist](/checklists/month-end-close/balance-sheet-reconciliation)
- [Month-end close checklist](/checklists/month-end-close)

## About the author

Arthur Teboul (Founder, DokuTrak) is building DokuTrak after watching professionals lose hours chasing clients for documents over email. [Arthur Teboul](/authors/arthur-teboul).

How this page was made (methodology): it is built from the primary sources listed under Sources, and every rule and figure on it links to the source it comes from. Last updated October 25, 2026. Spotted an error or a rule that changed? [Contact us](/contact).

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