A recurring journal is normally used to apportion an expense that covers more than one financial period. For example, you may receive a bill in April for 12 months of council tax. If you only post this on the April period then this inflates the expenses section of the profit and loss statement and has a negative effect on the profit.
By creating a recurring journal you can spread the expense across 12 periods spreading its effect on the profit for each period. To do this, follow the steps below:
Post the bill to a prepayment nominal. This would be a balance sheet nominal.
Create a recurring journal crediting the prepayment nominal and debiting the rates nominal for 1/12th of the bill.
Set the frequency of the journal should be to Monthly and the number of entries to 12. This post the journal for you on the nominated day each month.
The profit and loss statement shows a debit against the rates nominal for 1/12th of the bill. You can use recurring journals for apportionments that are monthly, quarterly, and half-yearly as well as weekly, 4 weekly, and yearly.
The amount to post doesn't have to be an equal amount, you can specify how much to journal and when. You can then view all journals on the audit trail.
There are a number of expenses that you could apportion in this way. For example, rent, insurance, mobile phone contracts, hardware warranties.
You can also use recurring journals to apportion any expense that you pay in arrears but know the value or can estimate based on previous bills. For example, you normally receive gas and electricity bills for a previous quarter. If you post this to the period you received the bill, you'd inflate the expenses section of the profit and loss report and have a negative effect on the profit. You'd also inflate the profit for the previous periods by not taking this expense into account.
By creating a recurring journal you can apportion this to the correct periods, by using previous bills, you can estimate the usage. You can then make the adjustment when you receive the bill.