How a bookkeeper for small business would calculate its client prepayments

Suppose that you as business owner enters into a 1 year service to rent a software for £1200 in June 1 2025 and your year-end is March 31 2026. You paid up front in June 2025 the £1200.

To calculate the June 2025 software expense charge, the bookkeeper for small business would to the following accounting entries:

As you can see by crediting £1,100 of the total invoice of £1,200, £100 are left in the current month as a software expense charge in Profit and Loss and £1,100 is deferred for future months. Then each month the bookkeeper for small business would charge £100 for software expenses and “release” £100 from the prepayments

Once we get to year-end March 31, 10 months have passed since the payment of £1,200 was done and the Bookkeeper for small business needs to prepare the accounts and file corporation tax, the position is as followed:

This means that for that year your accounts will show a deduction from trading revenue of £1,000 due to software expenditure.