Use Prepayments to account for costs you've paid upfront that relate to a future period. Common examples include annual insurance, software licences, and subscriptions invoiced in advance.
Without proper treatment, these costs distort monthly reporting by concentrating the full amount in one period instead of spreading it over the service duration.
Prepayments let you reallocate and unwind these expenses over the correct periods through automated journals.
Important: This feature is available for accounts connected with Xero, QuickBooks Online, and MYOB.
How to use Prepayments
To set up a prepayment in Dext, follow these steps:
Go to Business settings > Connections > Manage next to your accounting software connection > Settings, then choose a Default prepayment category.
In the Costs inbox, open the relevant item. On the Item details page, scroll down and set the Prepaid expense toggle to Yes.
Choose a Prepayment recognition method (required).
Set a Payment start and end date for the prepaid expense (required).
Once you've completed all other item details, publish the item to your accounting software.
Prepayment recognition methods
Dext offers 2 prepayment recognition methods — by months and by days — that control how the cost is spread across the recognition period.
1. "By months" recognition
The "by months" method divides the prepayment equally across the months in the period, regardless of how many days each month contains.
Example:
£1,200 insurance paid for 12 months (Jan to Dec).
Dext records a £100 journal each month, whether the month has 28, 30, or 31 days.
2. "By days" recognition
The "by days" method divides the total amount by the exact number of days in the coverage period. Dext recognises the expense daily and rolls the totals up to the correct month-end.
Example:
£1,200 insurance covers 1 Feb to 31 Jan next year (365 days).
Dext recognises £3.29 each day (£1,200 ÷ 365).
February records £92.12 (28 × £3.29), March records £101.90 (31 × £3.29), etc.
Tip: Choose "by days" when you need costs to align exactly with the service period rather than splitting evenly by month.
What happens once the item is published?
Publishing a prepayment follows the same process as any other item, with Dext applying extra journal logic on top.
1. Initial reallocation on invoice date
When you publish the prepayment, Dext creates a manual journal that:
Debits the "Prepayments" account
Credits the expense category originally assigned (e.g., "Insurance")
This removes the full amount from the expense account and shifts it to a balance sheet prepayment account.
2. Monthly recognition journals
Dext then generates a series of manual journals, one for each month of the coverage period:
Each journal credits the "Prepayments" account
Each journal debits the original expense category
Dext posts all entries individually at once because Xero, QuickBooks Online, and MYOB don't provide an API for creating repeating journals. This means Dext creates the full journal schedule upfront, based on the document's date range.
Tracking Prepayments
Track prepayment activity using the Prepayments tracker — go to Tracking Prepayments.