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.
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:
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:
|
Category |
Prepaid Expense |
Accrued Expense |
|
Timing of Payment |
Paid before benefit received |
Paid after benefit received |
|
Balance Sheet Entry |
Asset |
Liability |
|
When Expensed |
Gradually over benefit period |
Immediately when incurred |
|
Cash Flow Effect |
Outflow occurs first |
Outflow occurs later |
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 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.
|
Scenario |
Type |
Example |
Accounting Treatment |
|
Annual insurance premium paid Jan 1 |
Prepaid |
$12,000 yearly policy |
Expense $1,000 each month |
|
Utilities used in December, billed January |
Accrued |
$800 electricity used |
Record expense in December |
|
Rent paid in advance for next quarter |
Prepaid |
$9,000 for three months |
Record as prepaid, expense monthly |
|
Wages owed for final days of the month |
Accrued |
$3,000 earned, unpaid |
Record wage expense & liability |
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
When your organization operates across multiple cost centers or global subsidiaries, prepaid and accrued expenses can become complex.
Getting prepaids and accruals right ensures:
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.
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:
With ExpensePoint, your finance team spends less time reconciling and more time analyzing.
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:
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.
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.