Deferred expenses

Deferred expenses and prepayments (also known as prepaid expenses) are both costs that have already occurred for products or services yet to be received.

Such costs are assets for the company that pays them since it already paid for products and services but has either not yet received them or not yet used them. The company cannot report them on the current profit and loss statement, or income statement, since the payments will be effectively expensed in the future.

These future expenses must be deferred on the company’s balance sheet until the moment in time they can be recognized, at once or over a defined period, on the profit and loss statement.

For example, let’s say we pay $1200 at once for one year of insurance. We already pay the cost now but haven’t used the service yet. Therefore, we post this new expense in a prepayment account and decide to recognize it on a monthly basis. Each month, for the next 12 months, $100 will be recognized as an expense.

Prepayment account

Deferred expenses are recorded on an account of type Prepayments (see account types). Make sure such an account exists in your chart of accounts, and select it on the vendor bill line (or as the product’s expense account) instead of the expense account.

Recognizing deferred expenses periodically

The periodic recognition of deferred expenses can be automated with the Odoo 18 Assets Management (om_account_asset) module, using a dedicated asset category:

  1. Go to Accounting ‣ Configuration ‣ Management ‣ Asset Category and create a category, e.g., Prepaid insurance:

    • Asset Account and Depreciation Entries: Asset Account: your prepayment account;

    • Depreciation Entries: Expense Account: the expense account on which the cost is recognized;

    • Number of Entries: e.g., 12, and One Entry Every: 1 month;

    • Computation Method: Linear;

    • optionally Prorata Temporis and Auto-Confirm Assets.

  2. On the vendor bill, select this category in the Asset Category column of the deferred line (or set it as the product’s Asset Type). The line’s account is replaced by the prepayment account.

  3. When the bill is confirmed, a record is created in Accounting ‣ Configuration ‣ Management ‣ Assets with the recognition schedule in its Depreciation Board tab.

  4. The recognition entries (debit expense, credit prepayment) are generated monthly, or manually from Accounting ‣ Accounting ‣ Generate Entries ‣ Generate Assets Entries.

screenshot: accounting-deferred-expenses-category
menu
Accounting ‣ Configuration ‣ Management ‣ Asset Category ‣ New
shows
Asset category "Prepaid insurance" with the prepayment account as Asset Account and Depreciation Entries: Asset Account, an insurance expense account as Depreciation Entries: Expense Account, 12 entries, one entry every 1 month, Linear method.
highlight
The account fields (red frame).
data
Demo company "YourCompany HU" with a prepayment account (e.g., "391 Aktív időbeli elhatárolás").
module
om_account_asset
notes
English UI, light theme, 1440px width.

Note

The expense can also be recognized manually with miscellaneous journal entries (debit the expense account, credit the prepayment account), created from Accounting ‣ Accounting ‣ Journal Entries.

Deferred expense report

The Deferred Expense report shows the balance of the Prepayments accounts at a given date. To access it, go to Accounting ‣ Reporting ‣ Dynamic Reports ‣ Deferred Expense.

screenshot: accounting-deferred-expenses-report
menu
Accounting ‣ Reporting ‣ Dynamic Reports ‣ Deferred Expense
shows
Interactive "Deferred Expense" report listing the prepayment accounts and their balances at the selected date, with the date and journal filters.
data
Demo company "YourCompany HU" with a prepaid insurance bill.
module
account_dynamic_reports
notes
English UI, light theme, 1440px width.

See also