Prepaid vs Accrued Expenses: What Finance Teams Need to Know for Faster Close Cycles

Two culprits that slow down the close the most are prepaid and accrued expenses. Handled manually, they cause bottlenecks, errors and rework across departments. With the right automation tools, they can instead accelerate your close and improve financial forecasting. 

What Are Prepaid & Accrued Expenses? A Quick Refresher 

Prepaid Expenses 

A prepaid expense is a cost you pay in advance for goods or services you’ll use in the future. Since you haven’t yet received the benefit, it’s recorded as an asset and are gradually expensed over time. 

Examples: 

• Annual insurance premiums 

• Rent paid ahead 

• Prepaid maintenance contracts 

• SaaS or subscription fees billed yearly 

Accrued Expenses 

An accrued expense is the opposite—a cost you’ve incurred but not yet paid. You recognize it immediately as an expense and record it as a liability (an obligation to pay later). 

Examples: 

• Employee salaries at month-end not yet paid 

• Utilities consumed but billed next period 

• Interest payable 

• Taxes owed but not yet remitted 

Prepaid vs. Accrued Expenses: What’s the Difference? 

Put simply: Prepaid = paid early, Accrued = owed later. 
Both ensure your expenses align with the period they relate to not just when cash moves. 

A Simple Way to Remember 

A Reddit accountant once summed it up perfectly: 

“Accruals are just ‘you owe me or I owe you’ entries at period end so the numbers make sense.” 

That’s exactly how these two concepts work, bridging the gap between cash flow and economic activity. 

Real-World Examples 

Journal Entry Examples 

Prepaid Expense: 

Dr Prepaid Expense (Asset) 

Cr Cash / Bank 

At month-end: 

Dr Expense 

Cr Prepaid Expense 

Accrued Expense: 

Dr Expense 

Cr Accrued Liability 

When paid: 

Dr Accrued Liability 

Cr Cash / Bank 

The Close Cycle Problem & Why It Matters to Finance Teams 

When your organization operates across multiple cost centers or global subsidiaries, prepaid and accrued expenses can become complex. 

Getting prepaids and accruals right ensures: 

• Accurate financial reporting: keeps expenses aligned with periods 

• Audit readiness: supports GAAP and IFRS compliance 

• Stronger forecasting: clarifies true operating costs and future cash needs 

• Smooth month-end close: fewer adjustments, faster reporting 

But tracking these manually across departments is time-consuming. Spreadsheets break, approvals lag and accrual estimates go missing. These manual processes create friction in the close cycle, not insight. That’s where automation helps. 

How ExpensePoint Simplifies Prepaid & Accrued Expense Management 

ExpensePoint automates and centralizes your expense tracking, so you can manage prepaids, accruals and reimbursements seamlessly in one centralized platform. 

Here’s how ExpensePoint helps your finance team: 

• Smart Categorization: Tag prepaid and accrued expenses at the source for accurate reporting. 

• Automated Workflows: Approve, allocate and post transactions without manual chasing. 

• Accrual Reporting: Generate real-time reports on outstanding liabilities and amortized prepaids. 

• Audit-Ready Records: Store receipts, invoices and approvals in one place for audit confidence. 

• ERP Integration: Sync instantly with systems like Sage Intacct, Xero and NetSuite. 

With ExpensePoint, your finance team spends less time reconciling and more time analyzing. 

Best Practices for Managing Prepaids & Accruals 

1. Add both to your month-end checklist. Make it process-driven. 
   
   
2. Set reminders for prepaid amortization. ExpensePoint automates this for you. 
   
   
3. Use clear naming conventions. Label entries by period and category. 
   
   
4. Reconcile regularly. Review balances monthly to catch errors early. 
   
   
5. Educate your team. Share simple “you owe / I owe” examples to align understanding. 

The CFO’s Takeaway 

The difference between prepaid and accrued expenses is more than timing. It’s about data control and process efficiency. 

By automating how these are captured and reported, finance leaders can: 

• Shorten close cycles  

• Reduce reconciliation workload  

• Improve forecast accuracy  

• Maintain compliance and audit readiness 

Ready to Accelerate Your Close Cycle?  

Manual spreadsheets slow down your team. Automation frees them up for strategy. See how ExpensePoint helps hundreds of finance leaders automate accruals, manage prepaids and close the books faster every month. 

Request a Free Demo with ExpensePoint 

See how hundreds of finance teams streamline accruals, automate reimbursements, and maintain audit-ready accuracy with ExpensePoint. 

FAQs 

What is the main difference between prepaid and accrued expenses? 
Prepaid expenses are paid in advance and recorded as assets, while accrued expenses are incurred but not yet paid and recorded as liabilities. 

Are accrued and prepaid expenses the same? 
No. They are opposites in timing, prepaid expenses are paid early, accrued expenses are paid later. 

Why are accruals important for finance teams? 
Accruals ensure expenses and revenues are recorded in the correct period, giving a true picture of financial performance. 

How does ExpensePoint help manage accruals? 
ExpensePoint automates categorization, approval, and reporting for accrued and prepaid expenses, reducing manual work and improving accuracy.