How to handle Prepayment or Deferred Expenses in Odoo CE

Prepayment or Deferred Expenses (aka Prepaid Expenses) are expenses items such as insurance (vehicle/housing), rent (Water Dispenser, Housing Rent), etc, that you paid in advance, but will be consumed at later period of time.

A prepayment account is usually an asset account, because it is something that you paid in advance. It will be only posted in the P&L and Balance Sheet when it is consumed, over a period of time.

In the Odoo EE V13 and above, there is a feature called Deferred Expenses to manage this, but it is not available in the Odoo CE.

How it is handling in the traditional accounting system

In the traditional way, it is very time consuming. For example, there is a vehicle insurance prepayment of MYR1,200 for 12 months period.

a) Charge the entire amount (MYR1,200) of the vehicle insurance to the prepaid expenses account. So now there is a "Prepayment" asset in your Balance Sheet.

DR MYR1,200 to the "Prepayment" account.

CR MYR1,200 to the Bank account.

b) In each subsequent month (12 months), charge MYR100 to the Vehicle Insurance (Expense) account, in the journal entry. Each month, your asset "Prepayment" will be reduced by MYR100 and become your expense.

DR MYR100 to the "Vehicle Insurance" account.

CR MYR100 to the "Prepayment" account.

How it can be handled in the Odoo CE

Download this paid Deferred Expense App.

a) Create a Account with a "Prepayment" type.

b) Create a Deferred Expense type.

c) Create a vendor bill with the "Prepayment" Account and Car Insurance product with "Deferred Expense Type".

d) A Deferred Expense will be created with the 12 Journal entries (12 months) and will be posted over the time.

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