Amortization method: defines how the total value of an accrual is spread out over time in the general ledger.
For example, a $1,200 prepaid insurance policy over 12 months could be recognized:
Evenly each full month
Or split between partial months if using a mid-month convention
Or with the first month prorated by actual days, equal amounts in the middle, and any remainder captured in the last month
Available amortization methods
Method | Description |
Straight line (full-month) | Splits the balance evenly across each full month, starting with the recognition month. |
Straight line (mid-month) | Follows mid-month convention: ½ month recognized in the first and last month, with full months in between. |
Straight line (actual days) | Prorates the first month based on the actual number of days in that partial period. All middle months are recognized in equal amounts. The last month captures any remaining balance, including rounding. |
Example
A $12,000 prepaid expense with a 12 month life, the entries would appear as follows:
Straight line (full-month)
Month | Entry Amount |
Jan | $1,000 |
Feb | $1,000 |
... | ... |
Dec | $1,000 |
Straight line (mid-month)
Month | Entry Amount |
Jan | $500 |
Feb–Dec | $1,000 |
Jan | $500 |
Straight line (actual days)
In this example, the schedule starts Jan 16. The monthly rate is $12,000 ÷ 12 = $1,000. January is prorated by actual days (16 of 31), the 11 middle months are equal, and January of the following year captures the remaining balance.
Month | Entry Amount |
Jan (16 of 31 days) | $516.13 |
Feb–Dec | $1,000.00 each |
Jan (following year, remaining) | $483.87 |
Updating the method
You can update the amortization method on any schedule that has not posted yet.
If journal entries have already been posted, you will not be able to change the method.
To fully reset a schedule's method, you will need to delete and recreate the schedule which is made simple by the delete an accrual feature.