Prepaid expenses on the balance sheet: prepayments and accrued income
In December you pay the insurance for the whole of next year. That is not a cost of this year. This is how the amount ends up as a prepayment on the Dutch balance sheet, and you work out how much it is in a few steps.
The short answer
Prepaid expenses for a following period are shown as a prepayment under current assets, usually combined with the receivables. You book them on the balance sheet when you pay and take them to expense in proportion to time. A micro entity does not have to do this for other operating costs (art. 2:395a(3) DCC).
Updated 30 October 2026
Key facts
| Law | art. 2:364(3) DCC: current assets include, to the extent not stated under receivables, prepayments and accrued income |
| Guideline | RJ 224 (in this form in force since financial year 2024); RJk B5.2; for micro RJk M1.302 |
| Applies to | Financial years 2025, 2026 and 2027: the statutory text and these guidelines have not changed in those years |
What are prepaid expenses?
Prepaid expenses are amounts you pay for costs that only fall in a following period, such as insurance premiums, subscriptions, memberships and rent (RJ 224.102). In addition, amounts still to be received are also prepayments and accrued income, such as interest you earned over the year but have not yet received. Together they are called prepayments and accrued income (overlopende activa).
You capitalise them because they represent a right: cover under an insurance policy, a subscription that is still running. Unlike a receivable, they do not lead to a receipt (RJ 224.103). You take the amount to expense systematically, usually in proportion to time (RJ 224.104).
Where is it on the balance sheet?
Under current assets, next to inventories, receivables, securities and cash and cash equivalents (art. 2:364(3) DCC); if prepayments and accrued income are already included in the receivables, they are not shown separately. In the models of the Dutch Annual Accounts Models Decree (Besluit modellen jaarrekening) they appear together on one line, receivables and prepayments and accrued income.
- A separate line is recommended only if the amount is of sufficient importance; otherwise you combine it with the other receivables (RJ 224.105).
- If the amount is shown separately on the balance sheet, you state in the notes which part has a remaining term of more than one year (RJ 224.106). A three-year premium therefore has a long and a short part. For the distinction between fixed and current, RJ 190.2 applies.
- If it matters for the true and fair view, the nature of the item is apparent from the classification, the name or the notes (RJ 224.102; for small RJk B5.203).
How to book it
- On payment: debit prepaid expenses, credit bank. The VAT you can deduct is not part of the amount.
- Per month or at the end of the financial year: debit the cost account (insurance, rent, software), credit prepaid expenses, for the part belonging to the expired period.
- Check on each balance sheet date: the balance of the account must equal the sum of what is still running, per contract.
Case: three prepayments at a small BV
Hofstee Ontwerp BV closes its financial year on 31 December 2025. It prepaid three amounts.
| Item | Paid | Period | Costs 2025 | Prepayment at 31-12-2025 |
|---|---|---|---|---|
| Liability insurance | € 6.000 | 1 Nov 2025 to 31 Oct 2026 inclusive | € 1.000 (2/12) | € 5.000 (10/12) |
| Office rent first quarter 2026 (paid on 22 Dec) | € 9.000 | Jan to Mar 2026 inclusive | € 0 | € 9.000 |
| Software licence | € 2.400 | 1 Sep 2025 to 31 Aug 2026 inclusive | € 800 (4/12) | € 1.600 (8/12) |
| Total | € 17.400 | € 1.800 | € 15.600 |
Without a prepayment, the BV would show € 17.400 in costs for 2025; with a prepayment € 1.800. Profit before tax is therefore € 15.600 higher, and so is equity, before tax. In 2026 that € 15.600 still goes to expense, alongside whatever the BV prepays again that year. If the amount is not on the balance sheet, profit shifts between years; that is only allowed if you are a micro entity using the exemption.
The mirror image is an invoice for December that you receive in January: that is an accrued liability (overlopend passief), not a prepaid expense.
By size class
| Class | What applies |
|---|---|
| Micro entity (balance sheet total ≤ € 450.000, net turnover ≤ € 900.000, < 10 employees) | For other operating costs you do not have to recognise prepayments and accruals, for example no prepaid rent (art. 2:395a(3) DCC; RJk M1.302). If you do not, you state that at the foot of the balance sheet |
| Small entity (balance sheet total ≤ € 7,5 million, net turnover ≤ € 15 million, < 50 employees) | Mandatory if the item exists; the nature is apparent, where necessary, from the classification or notes (RJk B5.201 to B5.203). The term beyond one year is a recommendation |
| Medium-sized entity (balance sheet total ≤ € 25 million, net turnover ≤ € 50 million, < 250 employees) | RJ 224; in the public balance sheet the accruals and deferrals remain mentioned (art. 2:397(5) DCC) |
| Large entity (balance sheet total > € 25 million, net turnover > € 50 million, ≥ 250 employees) | RJ 224 in full, including the note on the term longer than one year for a separate item (RJ 224.106) |
The micro exemption is narrow. It applies only to costs that belong to other operating costs, such as rent, insurance and subscriptions. A prepayment on inventory or on a machine belongs on the balance sheet under inventories or tangible fixed assets respectively (art. 2:369 DCC, art. 2:366(1) DCC; RJ 222.307). If Hofstee had a micro balance sheet, the € 15.600 could go directly to expense, with the result of lower equity and therefore less room for dividend. If you choose not to recognise it, keep that up in all years.
Common mistakes
- Taking an annual premium that you pay in December entirely to the costs of the old year.
- Confusing prepaid expenses with an amount received in advance: the first is an asset, the second a liability.
- Booking a prepayment to a supplier for goods as a prepayment (accrued income) when it belongs under inventories or fixed assets.
- Not splitting a multi-year contract into the part within and after one year.
- Capitalising the amount including deductible VAT. See also balance sheet including or excluding VAT.
Sources
Frequently asked questions
Are prepaid expenses part of the current assets?
Yes, as a rule. Prepayments and accrued income are shown under current assets, often combined with the receivables. If part has a remaining term of more than one year and the item is shown separately on the balance sheet, you state that part in the notes.
Does a micro entity have to capitalise prepaid expenses?
No, not for other operating costs such as rent and insurance. Art. 2:395a(3) DCC allows you not to recognise prepayments and accruals for them. You state that at the foot of the balance sheet. For other prepayments, such as on inventory, the exemption does not apply.
How do I book a prepaid annual premium?
On payment you debit prepaid expenses and credit bank. Every month or at the end of the financial year you book the expired part to the cost account. On the balance sheet date the unexpired part is shown as a prepayment.
What is the difference between a prepaid expense and a receivable?
A prepaid expense represents a right to a performance, such as cover or a subscription, and does not lead to a receipt. A receivable gives a right to money. Prepayments for services can be shown under other receivables or under prepayments and accrued income (RJ 222.307).
Do I have to put prepaid rent for next quarter on the balance sheet?
Yes, unless you are a micro entity using the exemption. Rent for a period that begins after the balance sheet date is not a cost of this year and is shown as a prepayment.
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