How to Reconcile Prepayments in Xero: Step-by-Step
A practical walkthrough for reconciling prepaid expenses in Xero, including where the built-in tools fall short and how to fill the gaps.
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Xero & Integrations6 min read12 June 2026
How to Find Unreconciled Prepayments in Xero
A practical method for identifying prepaid expenses in Xero that have not been amortized, so you can catch balance sheet errors before they become audit findings.
Stale prepayments are one of the most common balance sheet errors in Xero. A payment gets coded to a prepaid account and then no one sets up the amortization schedule. Months later, the balance sheet still shows the full original amount — long after the benefit has been received. Here is how to find and fix them.
Step 1: Run an Account Transactions Report
In Xero, go to Accounting > Reports > Account Transactions. Filter to your prepaid expense accounts (check your chart of accounts for the account names). Set the date range to the current financial year. Export the report to Excel.
Step 2: Look for Transactions with No Matching Journals
Each debit to a prepaid account (the original payment) should be followed by a series of credit entries (the monthly amortization journals). If you see a debit with no subsequent credits, you have a prepayment that has never been amortized. Similarly, if the credits stop before you would expect the prepayment to be fully consumed, someone stopped posting the journals.
Step 3: Check the Remaining Balance Makes Sense
For each transaction still on the prepaid account, ask: does this balance represent a genuine future benefit? If you paid for a one-year software subscription 14 months ago and the balance sheet still shows £800, something is wrong — the subscription has already expired and the expense should have been fully recognised.
Common culprit: contracts that were cancelled or not renewed, where the amortization journals continued to be set up but the vendor refunded a portion to the bank account. If the refund was coded to the bank rather than the prepaid account, you will have an overstated prepaid balance.
Step 4: Investigate Unexplained Balances
- Check original invoices or payment records to confirm what the prepayment was for
- Confirm the coverage period (start date, end date) so you can calculate the correct amortization
- Check whether any refund or adjustment was received and coded correctly
- Post correcting entries to bring the balance to where it should be
- Document the investigation in your reconciliation workbook
Preventing It Going Forward
The root cause is a lack of a systematic amortization schedule. Every time a payment is coded to a prepaid account in Xero, someone needs to set up the corresponding amortization. The best fix is to make this part of your accounts payable process — when a bill is coded to a prepaid account, the amortization schedule is created at the same time.
CloseKit tracks every prepayment with a full amortization schedule and shows you the expected balance at any date. The Xero integration (coming soon) will let you compare your CloseKit schedule balance against the Xero GL balance directly — making unreconciled prepayments impossible to miss.
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