Plan for the impact of Prepaid Expenses on Cash
A significant Prepaid Expense can greatly impact Cash, so it makes sense to plan for the timing of known cash payments as well as the corresponding amortization. For example, Insurance is typically paid upfront and amortized over the policy period.
To plan for an Annual Prepaid Insurance policy, navigate to Plan > Drivers and follow the steps below.
Step 1: Add the Prepaid & CapEx Asset & Define the Properties
Go to Plan > Drivers > locate Prepaids & CapEx Assets Section > + Add Asset and input the properties.
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- Name: Prepaid Insurance (reference field for the Driver in Step 2)
- Asset & Asset Contra Account: Prepaid Expenses (Choose the right Prepaid Balance Sheet Account for both)
- Expense Account: General Insurance (Periodic Insurance Income Statement Account)
- Expense Department: G&A (Income Statement Department )
- Amort Period: 12 (months)
- Asset Cost: $24,000 (Annual Contract value)
Step 2: Add a CapEx Driver to Trigger the Purchase of the Prepaid
Scroll down to and locate CapEx area > + Add Driver and populate the Driver
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- Name: Prepaid Insurance
- Asset: Prepaid Insurance (Name of CapEx Asset from Step 1)
- Output Type: Incremental
- Driver & Rate: Constant of 1
- ƒx: x
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- Freq: 12
- Start: June 2024 (payment date)
- End: Max Date
- Div/0: On
This will trigger the insurance policy to be purchased in the month of the Start and then renewed the following year. We can then immediately see the impact of the prepaid insurance on both the Income Statement & Balance Sheet.
