1. Identify Potential Prepaid Expenses
- ☐ Review expense transactions above your prepaid threshold.
- ☐ Look for annual software, insurance, rent, subscriptions, and service contracts.
- ☐ Confirm the benefit period extends beyond the current month.
- ☐ Separate true prepaids from normal monthly expenses.
2. Apply Accounting Policy Thresholds
- ☐ Define a dollar threshold, such as $2,500 or another company-approved amount.
- ☐ Review transactions above the threshold for capitalization or prepaid treatment.
- ☐ Document the policy used for consistent review.
- ☐ Route unclear items to controller or fractional CFO review.
3. Build the Prepaid Schedule
- ☐ Record vendor, invoice date, amount, start date, end date, and amortization period.
- ☐ Calculate monthly amortization amount.
- ☐ Track beginning balance, monthly expense, additions, and ending balance.
- ☐ Tie the schedule back to the prepaid asset GL account.
4. Record Monthly Journal Entries
- ☐ Record monthly amortization expense.
- ☐ Reduce the prepaid asset balance.
- ☐ Review entries for completeness and correct period.
- ☐ Save support for audit and review.
5. Review Prepaid Balances
- ☐ Compare prepaid schedule ending balance to the general ledger.
- ☐ Investigate stale or fully amortized balances.
- ☐ Review new additions for correct classification.
- ☐ Remove expired items from the schedule.