Accounting Toolkit

Accrual Timing

Brightwell — Prepaid & Accrued Items

Brightwell Inc.

The bill isn't due yet. The expense already is.

Download the workbook (.xlsx) ↓

The same matching principle, on insurance

Brightwell Inc. pays a $12,000 one-year property insurance policy in full on October 1 — but only 3/12 of it is used up by the December 31 year-end, so only $3,000 is expensed. An accrued utility bill and accrued year-end wages round out three variations on "expense recognized before or after the cash moves."

Whether cash changes hands immediately only affects timing — a payable is a promise of cash still to go out, recognized today even though the cash hasn't moved yet.

Using the calculator

  1. Change Policy Cost, Policy Term, or Months Used by Year End.
  2. Insurance Expense and Prepayment recompute as a straight Cost ÷ Term × Months split.
  3. Check the Total row's Debit and Credit columns agree.