Prepaid Expenses and Automatic Amortization Across Periods

Wafeq allows you to automatically amortize prepaid expenses—such as annual rent—across the relevant accounting periods. This ensures each period is charged with its fair share of the expense instead of recording the full amount upfront, resulting in more accurate and consistent financial reporting.

Creating a Purchase Bill with Amortization Enabled

Start by creating a purchase bill that includes the prepaid expense:

1. From the main menu, go to “Purchases” then click on “Purchase Bills.”

2. Click “Create Purchase Bill” and choose “Record manually”, or use other options such as uploading a file or receiving the bill via WhatsApp or email.

Enter the basic bill details such as (supplier, date, amount…).

In the bill line item:

• Description: Enter a clear description of the expense (e.g., Annual rent, Software subscription, Annual insurance).
• Amount: Enter the total prepaid amount (e.g., 12,000).
• Account: Select “Prepaid Expenses”, which temporarily holds the amount before it is amortized.

Adding Amortization

After selecting the account, click:

“Add Amortization”

Then enter the following details:

• Start date: Defines when expense recognition begins.
  You can enter it manually or enable “Same as bill.”
  ⚠️ If the start date is not the first of the month, the first period will be partial and its amount will differ.
• End date: Define the end of the period or number of months (e.g., 12 months).
• Expense account: The account where the expense will be recognized (e.g., Rent expense).
• Distribution method:
  • Even monthly distribution
  • By number of days in month

A schedule will be generated automatically showing:

• Amount per period
• Posting date
• Remaining balance

Saving and Approving the Bill

Click “Save as draft” or “Authorize.”

Once approved:

• The full amount is recorded as a Prepaid Expense
• The system automatically creates a journal entry each period to recognize part of the expense

Example:
12,000 over 12 months
→ 1,000 recognized monthly
→ Prepaid balance decreases to zero

Tracking Amortization

To review:

• Open the bill
• Go to “Amortization” tab

You will see:

• Amortization schedule
• Remaining prepaid balance
• Journal entry icon for each period to view the entry details

Reducing an Amortization Schedule with a Debit Note

If you need to reduce the amount of a purchase bill that has an existing amortization schedule, you can apply a debit note to the bill and link the debit note line to the relevant bill line.

This allows Wafeq to reduce the prepaid balance and update the amortization schedule accordingly, instead of continuing to amortize the original full amount. The remaining balance is re-spread across the remaining periods, and the related journal entries are posted automatically.

Example

Suppose you have a purchase bill for Office Rent with a total prepaid amount of SAR 675,000.00, amortized over 24 months.

The amortization schedule is set up as follows:

• Duration: 24 months
• Start date: 1 January 2026
• End date: 31 December 2027
• Original prepaid amount: SAR 675,000.00
• Monthly amortization: SAR 28,125.00

The expense is recognized at SAR 28,125.00 per month.

For example, after the first seven months:

• Expensed amount: SAR 196,875.00
• Remaining prepaid balance: SAR 478,125.00

The remaining balance continues to be amortized according to the schedule.

How to Reduce the Amortization Schedule

If you issue a debit note to reduce the amount of this purchase bill, you can link the debit note to the relevant bill line and reduce the associated amortization schedule.

When creating the debit note:

Once you click the bill, Wafeq takes you directly to the bill details and opens the Amortization tab, where you can review the existing amortization schedule before applying the debit note.

From the Bill page, click the arrow next to "Apply debit note".

Select "Create amortization debit note." 

Wafeq will open the Debit Note screen. Enter the required debit note details, such as the Debit Note number, Supplier, Currency, and Date.

Once the debit note is approved, Wafeq automatically updates the amortization schedule.

The system:

• Reduces the prepaid balance by the amount of the debit note.
• Updates the amortization schedule to reflect the reduction.
• Re-spreads the remaining balance across the remaining periods.
• Automatically posts the related journal entries.
   

Reviewing the Updated Amortization Schedule

After applying the debit note, open the original purchase bill and go to the Amortization tab.

The amortization timeline will show the reduction applied by the debit note and the updated amounts for the remaining periods.

You can use the schedule to review the updated:

• Expensed amount
• Prepaid balance
• Posting dates
• Remaining amortization periods
• Debit note reduction

This keeps the amortization schedule aligned with the updated value of the prepaid expense without requiring you to manually adjust the remaining periods.