We paid a year of insurance up front. How much of it is this month's cost?

$7,200 of insurance, and $600 of it is September's cost

A prepaid expense is a cost that you pay before you use it. It stays an asset on the balance sheet until you use it. Then it moves to the income statement as an expense. An accounting textbook uses insurance as its example. It spreads a $4,500 six-month policy at $4,500 ÷ 6 = $750 a month¹.

Why are the 11 unused months an asset? Northbrook has a right to cover that it paid for and did not use yet. The international framework for financial reports defines an asset as a present economic resource that the business controls because of past events². Northbrook reports under US rules, so this is the IFRS wording of the same idea.

The skill uses one of two ways to divide the cost, and you choose the way. Whole-month gives each month an equal share: $600. Daily gives each day an equal share: 7,200 ÷ 365 days × 30 days = $591.78 for September, and $6,608.22 stays. Both ways are correct. The skill uses one way for each item and records which. Northbrook uses whole-month.

The ledger holds the prepaid balance. It does not hold the schedule.
SKILL.md

Your books show the total in the prepaid account. They do not show what each part of it pays for, or when that cover ends. Those dates are on the policy and the contracts. So the skill always asks you for them.

Seven payments at Northbrook Trading for September 2026

Northbrook Trading keeps its books in US dollars, with a calendar year. The month is Tuesday 1 September to Wednesday 30 September 2026. The skill reads the account "Prepaid Expenses" through MosoFin, back to its oldest open item. It also reads the expense accounts, where it finds one more prepaid. The owner gives the cover dates from the policy schedule and the contracts.

Cobalt shows why the dates matter. Northbrook paid on 15 June, and the cover started on 1 July. If the cost started in the payment month, June would get 400. By 30 September the expense would be 1,600 instead of 1,200, which is 400 too much. The skill's rule:

Never derives coverage dates from the payment date or the invoice memo.
SKILL.md, Rules that never bend

The account agrees with itself, and it is still $7,250 too high

A quick test compares the account balance with a roll-forward. A roll-forward is the opening balance, plus new payments, minus the monthly cost. At Northbrook both give 22,100. That agreement proves only that the books add up. Both numbers come from the same books.

The skill uses the schedule that it built from your dates as the third test. Only the schedule knows what each part of the balance pays for. The skill's rule:

Never reports a roll-forward as a reconciliation.
SKILL.md, Rules that never bend

The books also show three problems before the skill sees any contract:

The skill also tests if the balance is more than 12 months of new payments. Here it is not: 22,100 against 23,000. But P0's cover ended on 31 August, and 550 of it stays in the account. The schedule finds that amount.

Three draft entries, and one deposit to move

Pixelform covers April 2026 to March 2027. Northbrook used six months, April to September. So the correction returns only the six unused months to the asset: 1,500, and not 3,000. The year 2026 is still open, so the correction goes through this year's expense.

Every draft carries this mark:

PROPOSED — NOT POSTED

The owner's answer: the 2026-27 policy costs 600 in September, and 600 in each month to August 2027. At 30 September, 6,600 stays. If you post E2 in September, September's report also shows August's 550 from last year's policy. That 550 belongs to August, and you decide the posting date. You also create the recurring entry again in QuickBooks. Next month, the skill tests that it ran.

Two small payments go straight to expense, and their total stays in view

Northbrook's limit is $1,000. Accountants call this a materiality threshold. A trade association membership of 600 and domain and hosting of 480 are each below 1,000. Each covers 12 months, and each goes to expense when Northbrook pays it. The skill lists them, with a count of 2 and a total of 1,080.

It also shows what the limit does. Spread over 12 months, the two items cost 50 + 40 = 90 a month. As expense on payment, September carries 1,080, which is 990 more. The next 11 months carry none of them. The owner keeps $1,000. The skill applies your limit and never sets one. The accruals page for Northbrook uses a $500 limit for accruals. That is a different policy, and both limits are the owner's.

Then the owner says: "Just post these in QuickBooks." The skill declines once, in plain words, and gives the owner the three drafts. It cannot change data in a connected system. Nothing in the books changes.

What stays, and when you use it

After the drafts and the deposit move, Northbrook's prepaid total is $16,350. The skill splits it by time. The part for the next 12 months is current. The part for later is non-current.

Northbrook's chart of accounts has no account for non-current prepaids. The skill says so, because the $450 then shows as current on the balance sheet. The $16,350 is not money in the bank. Prepaid expenses never become cash, so they cannot pay a bill. Accountants still report them as current assets³.

Eight questions, in one message

The skill asks these first, in one short batch. It asks only for what it cannot already see.

1. Use MosoFin for this run, or upload the data yourself?
   MosoFin is the connection to your books and the other platforms that you link. With it, the skill reads from there. Without it, you upload the files, and the tests are the same. The skill asks this only if your account has the MosoFin tools. If not, it says once that the run is manual.
2. Which company, or which companies in a group?
   Each company gets its own schedule, with its name on it. The skill never puts two companies into one schedule. On the MosoFin path it asks you by name and never chooses for you.
3. Which account or accounts hold your prepaids?
   Many books have more than one. Sometimes an "Other Current Assets" account holds many different items. On the MosoFin path the skill reads your chart of accounts first, then asks you to confirm.
4. The start and end date of the cover for each open item, and your current prepaid schedule if you have one.
   Required. Your books cannot supply these dates. The skill asks item by item. If you do not know a date, the item goes on the schedule with blank dates and the flag "unknown". The skill never guesses a date.
5. Your materiality threshold: the amount below which a payment goes straight to expense.
   This decides what goes on the schedule. You set it, and the skill never sets it. The skill can show what a proposed limit does in total. If you set none, the coverage sheet says so.
6. Whole-month or daily?
   Both ways are correct, but one schedule must not mix them. The skill looks at how your past entries divide the cost, then asks you to confirm.
7. Do you recover sales tax such as VAT or GST when you pay, and in which country?
   Where you can recover the tax, it comes out at payment, and the skill does not spread it. You state the policy. The skill still tests the books for recoverable tax inside the asset.
8. Your main currency, and your policy for prepaids in a foreign currency.
   A prepaid is not a right to an amount of money, so it usually keeps its first exchange rate. You must give the currency. On the MosoFin path the skill reads it from your company record. It asks you to confirm the policy.

Then it reads the plan back and waits for your yes. The skill's own example also uses Northbrook. This page adapts it to the example above: no recoverable tax, because Northbrook is a US company, and dates for 5 of 6 items.

"Building the September prepaid schedule for Northbrook Trading, account Prepaid Expenses, from your Mosofin connection. Materiality $1,000, whole-month amortization, no recoverable tax (US). You gave coverage dates for 5 of 6 items; the other one goes on the schedule blank and flagged. Shall I go ahead?"

Connect once, or upload the prepaid account

Seven sheets, from the schedule to the coverage

It asks whether you want the sheets as an Excel file before it makes one. If you say no, you get the same sheets as tables in the chat. After you see the results, it offers to save your prepaid accounts, method, threshold, renewal months, cover dates and the errors that it found. It saves them only if you say yes.

Seven terms, in plain English

Prepaid expense

A cost that you pay before you use it. It stays an asset until you use it¹.

Amortization

Moving a prepaid into expense, a share at a time, over the months that it pays for.

Coverage period

The dates that a payment pays for. They come from the policy or the contract, and not from your books.

Prepaid schedule

A table of each prepaid item, its dates, its monthly cost and the amount that stays.

Roll-forward

The opening balance, plus new payments, minus the monthly cost. It shows how the account moved.

Materiality threshold

Your limit. Below it, a payment goes straight to expense and stays off the schedule.

Current and non-current

The part that you use in the next 12 months, and the part for later. Accountants report prepaids as current assets³.

Where the facts on this page come from

The sources are two sections of open accounting and finance textbooks, the IFRS conceptual framework and an IRS publication. We found each one on 28 October 2026 in search results. We did not open the pages, so follow each link for today's wording. What the skill does comes from the skill's own files.

1. OpenStax: Principles of Accounting, Volume 1, 4.2 Discuss the Adjustment Process and Illustrate Common Types of Adjusting EntriesA prepaid expense is a cost that a business pays before it uses it. It stays an asset until the business uses it, and then it moves to expense. The example spreads a $4,500 six-month policy at $750 a month.
2. IFRS Foundation: Conceptual Framework for Financial ReportingAn asset is a present economic resource that the entity controls because of past events. An economic resource is a right that can produce economic benefits. This is the international framework. Northbrook reports under US rules.
3. OpenStax: Principles of Finance 2e, 19.1 What Is Working Capital?Supplies and prepaid expenses never become cash, so they cannot pay bills. Businesses still report them as current assets.
4. IRS: Publication 538 (01/2022), Accounting Periods and MethodsFor US federal tax only. A prepaid expense is usually deductible only in the year that it applies, unless it qualifies for the 12-month rule. A business that starts to use these rules needs IRS approval first.

No outside authority backs the four ledger tests, the 5.6 ratio, the three-way tie-out and its variance shapes, the seven sheets or the draft mark. They are the skill's own rules. We made up Northbrook Trading, its vendors and every figure in the example for this page. Source 2 is international. Sources 1, 3 and 4 are US sources.