Accruer never interacts with cash, AP, or AR accounts. So how should you account for one accrual with multiple or unknown payment schedule(s)?

Examples may include:

Insurance expense that covers an entire year, but six months is paid upfront and then six separate installments are paid throughout the year.
Contract is signed and revenue should be recognized over the year, but invoicing won't occur until later on.

Here are two suggestions, although you can come up with your own as well!

Option #1: Using a "clearing" account

Best to use when:

You cannot estimate when the future cash activity will happen or
Multiple payments will take place

Step 1:

Record a journal entry for the full accrual amount. We'll use the insurance example above, but you can invert the accounts if it's related to revenue.

DR: Expense Account, "for the period [date] to [date]"

CR: Clearing Account (e.g. Insurance Clearing)

The clearing account is a balance sheet account that will hold the not-yet-recorded AP/AR/Cash activity.

Step 2:

Accruer automatically reverses the journal entry as normal with the following:

DR: Prepaid Expenses

CR: Expense Account

At this point, the clearing account is acting as an offset to Prepaid Expenses, since you haven't actually paid anything yet, so the clearing account is "holding" the liability for you.

Step 3:

Accruer will post monthly JEs as normal. These will not impact cash, AP, AR, or a clearing account.

Each month's JE will be as follows:

DR: Expense Account (for that month's share)

CR: Prepaid Expenses (for that month's share)

Step 4:

When cash activity occurs, select the clearing account on the bill, expense, invoice, etc. This will shift the balance from the clearing account to the appropriate account (cash, AP, or AR) and keep the balance sheet balanced.

Option #2: Future date your bill

Best to use when:

You can estimate when the future cash activity will happen and
Only one payment will take place

Step 1:

Record a bill, expense, invoice, or sales receipt on the date that you expect the payment to occur (e.g. 7/1/2024). You can always change the bill date later.

On the transaction you book, specify the service period (e.g. "for the period January 2024 to December 2024")

Step 2:

Accruer will book all of the monthly entries from January through December for you. The balance sheet accounts used will flip between asset and liability accounts as needed based on the date of the transaction and the dates you specified in the service period.

For example: If it is an expense dated 7/1/2024, and you write "for the period January 2024 to December 2024," Accruer will spread the P&L impact evenly across 12 months, and it will use a liability account for January through June (since no payment takes place until 7/1) and it will use an asset account for July through December (since it is after 7/1 when the payment takes place).

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Text is included below to improve search functionality within our Knowledge Base:

Insurance bill with payments throughout the year
Split a policy across a year with uneven payments
Many payments
Uneven payments
Customer pays on random daets

Frequently Asked Questions