Prepaid Licenses

This account reconciliation is an Asset account type and an Amortizable Prepaid reconciliation type. This type of reconciliation is used when you are paying a for an item in one accounting period, and expensing it over several future accounting periods. The most common type of expense of this sort would be property taxes. They are usually paid in advance for the whole year.

In this example, the balance in the General Ledger is being matched with the net amount remaining for truck license fees that are paid annually by the company.

Note the Company Policy section that specifies that license fees less than $400 are to be expensed when paid and not amortized. This information is easily accessible when completing the reconciliation by clicking on the Account Information tab.

Some things to notice about the above window...

First, there is a scroll bar on the right side of the Amortizable Items section. This indicates there are more items than just those displayed on the screen. You can view the additional items my clicking and dragging the scroll bar, or by clicking on the directional arrows.

Second, there is an Amortizable Item with an Original Amount of $150.00. The Company Policy states that items under $400 should be expensed when paid. This error should have been corrected by the person reconciling the account. As you can see, the error continues.

Preparation of reconciliations does not guarantee correct accounting, but it does provide a tool for someone to review and identify oversights and errors. If you are a supervisor/manager that is delegating the preparation of reconciliations, it is still your responsibility to review the work of your staff. If your boss is reviewing the reconciliations that you have prepared, that's what they should be doing. Thank them for keeping things up to date and in compliance with company policy.

The key to setting up the items to be amortized is the Amortizable Prepaid Item window. Below is license fee for the Mack MR truck with license number EEK722.

Note that the Comments section has no additional information. Sometimes additional information is not really valuable, but you never know. It might have been a good idea to add a little more information about the truck, such as the model year and the body type, just to make it easier to identify in case there was a question in the future about this item. The best time to gather information is when you have it... not re-creating it later. Use your own judgment about the value of additional information. Our suggestion is that more is better. The Amortization Begin Date and the Amortization End Date are based on the actual dates of the license.

After the window has been completed, the Monthly Amounts to be amortized must be set up. The window to do that is shown here. It is accessed by clicking on the Monthly Amounts button.

The amounts to be amortized are automatically calculated based on the information entered in the Amortizable Prepaid Item window. These amounts can be changed manually, if necessary. You will be advised that there is a "Balance remaining to be amortized" if the amounts you enter do not total the amount being amortized.

The final reconciliation report is here. You can see that all of the Amortizable Items appear in the report.

This particular account is reconciled with no Unidentified Difference.

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