Important: This feature is currently only available for accounts connected with Xero and QuickBooks Online.
Account for costs that are paid upfront but relate to a future period with prepayments. These expenses could include annual insurance, software licenses, or subscriptions that are invoiced and paid in advance.
Without proper treatment, these expenses distort monthly reporting, concentrating the full cost in one period instead of spreading it over the duration of the service. The prepayments feature provides a way to reallocate and then unwind these expenses over time through journal automation.
How to use Prepayments
1. Select a Default prepayment category by going to Business settings >
Connections > Manage next to Xero/QuickBooks Online > Settings.
2. In the Costs inbox, open the relevant item. On the Item details page, scroll down
and set the Prepaid Expense toggle to Yes.
3. Select a Prepayment recognition method. This is mandatory.
4. Select a Payment start and end date for the prepaid expense. This is mandatory.
When all other item details are complete, the item can then be published to Xero/QuickBooks Online.
Selecting a Prepayment recognition method
When setting up a prepayment in Dext, you can choose how the cost is recognised over time by selecting a Prepayment recognition method - either by months or by days - along with the start and end date for the recognition period.
1. “By months” recognition
How it works:
The prepayment is divided equally across the number of months in the period, regardless of the number of days in each month (simplified, even allocation).
Example:
£1,200 insurance paid for 12 months (Jan-Dec).
Dext will recognise and record a £100 journal per month in Xero/QuickBooks Online, regardless of whether the month has 28, 30, or 31 days.
2. “By days” recognition
How it works:
The total prepayment amount is divided by the exact number of days in the coverage period. Dext then recognises the expense daily and rolls the totals up into the correct month-end.
Example:
£1,200 insurance covers 1 Feb – 31 Jan next year (365 days).
Each day, £3.29 is recognised (£1,200 ÷ 365).
February records £92.12 (28 × 3.29), March £101.90 (31 × 3.29), etc.
This flexibility ensures that your expense recognition aligns precisely with the service period, resulting in clearer, more accurate financial reporting.
What happens once the item is published?
The flow remains consistent with the usual publishing process, but with extra logic layered on top:
1. Initial Reallocation on Invoice Date
When the prepayment is published to Xero/QuickBooks Online, 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:
Dext posts a series of manual journals, one per month of the coverage period
Each journal credits the "Prepayments" account
Each journal debits the original expense category
Because Xero and QuickBooks Online don’t provide an API for creating repeating journals, these entries are all posted individually at once. This means the full journal schedule is created upfront based on the document's date range.
Tracking Prepayments
Maintain visibility on prepayment activity with the Prepayments tracker. See more information in this article.