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Reflect Prepayment as Asset instead of Expense

Dear all,

I am encountering a problem when trying to make accounting entries for our Employee Insurance Premium. Under our insurance, we pay the full premium at the beginning of the coverage period (1 year). However, if an employee leaves after, for instance, 5 months, we will get a refund equivalent to the outstanding amount (i.e. 7/12 of the premium in this example).

According to good accounting principles, this PREpaid premium should be booked under Assets instead of Expenses. The conversion from “Prepaid Premium” as Asset to “Paid Premium” as Expense will take place subsequently (usually accounted for at the end of the financial year, e.g. if 3 months of the coverage period are still outstanding at the end of the financial year, then 9/12 of the “Prepaid Premium” under Assets will convert to “Paid Premium” under Expenses with 3/12 remaining booked under “Prepaid Premium” as Assets.)

How do I implement that concept in ERPnext?

I have found one similar discussion here: Prepaid Expense paid for fixed period
But in my opinion, the proposed solution does not solve the problem because there will still be nothing reflected in my “Prepaid Premium” account under Assets.

I figure that prepayment for insurance premiums (health, car etc.) are fairly common and hope that someone can advise on a neat solution. Thank you!

Best
Timo

Hi. any solution for your answer? i need it too.

my idea:

  1. create warehouse for this prepayment item. set stock account from COA
  2. create item group. set expense account.
  3. implement prepaid expense as above discussion