Credit Balance on new Expense Account

[Anthony]

On 1/12/07, Derek Atkins <warlord at mit.edu> wrote:
> Well, you can do it two ways..
>
> 1) Against Eq:O-B..  Then as you eat up the credit you just make bills
>    against Eq:O-B in the other direction until all the credit is eaten up.
>    Then you continue on from A:Checking
>
> 2) Make an Asset Account for the opening credit, and have your bills
>    come from that Asset account until the credit is used up.  Then continue
>    from your checking account.
>
> Either way works.  IANAA so I dont know if one way or the other is more
> GAAP than the other.
>

Using an asset account called "prepaid expenses" would probably be the
most correct.  Alternatively, just throwing the prepaid balance into
accounts payable (a liability account) would work too - if you don't
have any other accounts payable it might make the account have a
negative balance though.

Putting the expenses into opening balances will distort your expenses
for the year.  Say you want to see how much you spent on phone bills
in 2007.  You need the expenses to go into an expense account to do
that.  The credit side would be the other account, prepaid expenses or
accounts payable.

The advantage of using accounts payable is that you don't have to
switch things when your prepaid expenses run out.

Anthony