Ashcombe — Prepaid & Accrued Items

Paid once, expensed over time

Ashcombe Inc. pays for things on one date but, under accrual accounting, records the expense on the date the benefit is actually used up — the matching principle. A one-year, $6,000 software licence paid in full on November 1 is only 2/12 used up by the December 31 year-end, so only $1,000 is expensed and $5,000 sits on the balance sheet as a prepayment. A second prepaid maintenance contract and an accrued interest item reinforce the same pattern.

The payment date and the expense-recognition date are two different things — this workbook is about telling them apart.

Using the calculator

1. Change Licence Cost, Licence Term, or Months Used by Year End in the yellow cells.
2. The journal entry below splits automatically into Software Expense (months used) and Prepayment (months remaining).
3. Confirm the Total row's Debit and Credit columns match — that's the check that the entry balances.