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  • Writer's pictureEH Lim

Recurring journal entry

The recurring transaction is a transaction having the same accounting information which records into the accounting system on a periodical basis. Prepayment, accrual, depreciation, maintenance service, or rental invoices are examples of a recurring transaction. The accountant has to record the transaction manually when due or uses a recurring feature in the accounting software to automate the process.

For example, you invoice a customer for maintaining their office IT at $3,600 per year but only to realise the income progressively at $300 per month. In this case, you have to issue an invoice of $3,600 to the customer and charge the amount to a deferred income account (which is a current liability account type) instead of a sales account. This invoice debit accounts receivable and credit deferred income $3,600, and debit the bank and credit accounts receivable when payment received from the customer.

Next, enter a journal to debit deferred income and credit sales account of $300 and set the journal as a recurring transaction to record into the accounting system automatically when due for 11 more months. $300 will show in each month profit and loss report, and cumulate to $3,600 after the final recurring transaction has recorded.

Similar concept applied to the purchase invoice and payment. Assuming you paid for insurance which premium covers until next financial year. You can use the prepayment account instead of insurance expenses when recording the premium paid to the insurance company. The payment transaction debits the prepayment (which is a current assets account type) and credits the bank. Then, enter a journal to debit the insurance expense and credit prepayment for the next six to twelve months or until the premium ends.

The recurring transaction feature can apply on a Sales Invoice, Purchase Invoice, Receipt, Payment, or journal; the automatic process helps improve the productivity of an accountant and bookkeeper.

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