Setting up and writing off Prepaid Insurance
Let's assume it is early January '97 and you receive the six month premium notice for $600 for your car insurance. Rather than recording this payment as entirely "Insurance Expense" in the month of January, let's set up an asset account named "Prepaid Insurance" and then write-off the premium over the six-month period the premium is in force.
First create an asset account named "Prepaid Ins" and then record the payment in your checking account. Under category, select "Prepaid Ins".
Next set up a "Scheduled Transaction" which will write-off the premium over a 6 month period beginning on 1/31/97 at the rate of $100 per month. Select "payment" as type and "insurance expense" as category. Since car insurance is an on-going expense, it is a good idea to leave # of periods as 999. Any changes in future premium amounts can be handled by adjusting the amount of the monthly scheduled transaction.
You will now have an entry on your "Scheduled Transaction" list showing a transaction to Profit and Loss in the amount of $100.
On January 31, 1997,the account reminder will show a due transaction of $100 to Prepaid Ins.
Record the due transaction. Then open the register for Prepaid Ins. You will have an unexpired balance of $500 in your Prepaid Ins account.
Let's assume for this example only, that the only payment for the entire month was the one for insurance. Now create a "Profit and Loss" Statement from the Reports[Business] option for the month of January, 1997.
As you can see, recorded Insurance Expense is $100. By recording the payment of the 6 month premium to an asset account and then writing off the premium over the applicable 6 month period, you have put your books [for Insurance] on an "accrual basis" rather than a "cash basis". Any income or expense item which covers a period different or more than the one in which the item is "Liquified" [i.e., received in cash or paid out in cash] can be written-off or accrued in a similar manner.