The Prepaid is used when an invoice is entered with a future Accounting Period, but the check is cut in a previous month. This is an automatic entry. See an example below:
May 31st, 2024:
Credit to the Bank Account
Debit to Prepaid
June 1st, 2024
Credit to Prepaid
Debit to the Expense Account
The Prepaid is zeroed out in the accounting period to which the invoice is coded to. If the invoice was entered with an August 2024 accounting period, but the check was cut in May, the balance would remain in the Prepaid account until August 2022, when the debit to the Expense and credit to the Prepaid would automatically occur.
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