If a twelve month subscription starts on the 15th, count the days.

A contract that starts on the 15th.

Take an example software company with a calendar year end. On 15 March 2026 it pays 36,000 dollars for a year of a data platform, with service from 15 March 2026 to 14 March 2027. The payment goes to a prepaid asset and comes out as expense over the term. That part is settled. The open question is how much expense each month gets.

Current guides agree on the principle. Truewind advises prorating a mid month start by the days covered, and Zenskar shows a half month in the first month of a policy that starts on 15 April. What neither shows is the year end balance each choice leaves behind, which is the number that ends up on the balance sheet.

Twelve months of service, thirteen calendar months.

The term covers 365 days: 17 in March 2026, every day from April to February, and 14 in March 2027. That is thirteen calendar months with a part month at each end. We ran the contract through four common methods, and measured each against the days of service.

Counting days leaves 7,200.04 dollars of prepaid, which is the 73 days of service left in 2027 (four cents of it is rounding). The half month method lands within 300 dollars and is easy to explain. Starting the following month carries 1,800 dollars of 2026 expense into 2027, 25 percent too much prepaid. The equal thirteen split looks tidy on a schedule and is the hardest to defend: it charges 17 days of March as 2,769.23 dollars, 65 percent more than the days support, and then repeats that in a final March of 14 days.

The amounts here are small against a full set of accounts. A software company can hold dozens of these contracts, though, and a method that leans one way leans that way on all of them at once.

Picking the method: one line in the close procedures.

Days of service is the method that needs no further rules. It reads straight from the contract dates, so two people building the same schedule get the same answer. Use it for every prepaid above your capitalization threshold.

The half month method is a reasonable second choice if your team prefers round monthly figures. Starting the following month, often with a cutoff such as the 15th or the 20th, is a fair shortcut for small items, and it belongs with the threshold below which prepayments are expensed straight away. Whichever you choose, write it down and use it on every contract, so the balance moves only when the contracts do.

Two more year end questions: the long term part and the tax schedule.

Multi year deals add a classification step. IAS 1 paragraph 66 treats an asset as current when the entity expects to realise it within twelve months after the reporting period or to consume it in its normal operating cycle, and classifies all other assets as non-current. Suppose the same company prepays 108,000 dollars on 1 July 2026 for three years of service. At 31 December 2026, 90,000 dollars is left. The 36,000 that serves 2027 is current, and the 54,000 that serves 2028 and 2029 is non-current. US GAAP has its own wording in ASC 210-10, which we have not quoted here, so confirm the split with your auditor.

The tax return follows different rules. Treasury Regulation 1.263(a)-4(f) does not require a business to capitalize a payment for a benefit that does not extend beyond the earlier of 12 months after the benefit starts or the end of the following tax year. Our 15 March contract fits inside that window, and the regulation’s own Example 10 points out that the separate economic performance rules in section 461 still decide when an accrual method business takes the deduction. That is a question for your tax adviser. For the books, the takeaway is simpler: the tax schedule and the book schedule are two schedules, and the difference between them is recorded rather than copied across.

Setting up a day based schedule in Rivane.

In Rivane a prepaid is an amortization schedule. You name the prepaid asset account and the expense account, enter the amount, the start date and the end date, and pick a method: straight line, units of activity, declining balance or sum of the years’ digits. Rivane generates one line per month, and the lines always sum exactly to the amount paid, with the final line taking any rounding. A schedule set to post automatically is picked up by a daily sweep, and each posted line links to its journal entry.

Straight line in Rivane means an equal amount for each calendar month the term touches. For a contract that starts on the 1st that is exactly right. For our 15 March contract it would produce the equal thirteen split from the table, and the form shows that as the monthly amount before you save. For a mid month start, choose units of activity and enter the days of service in each month as the units: 17, then the days in each full month, then 14, with 365 as the total. Rivane allocates the amount in proportion to those units, which gives the day based schedule.

# A day based schedule for a mid month software contract.
# Example company. Shape only.

amount:          36,000.00   # paid 15 Mar 2026
service:         2026-03-15 to 2027-03-14   # 365 days
accounts:        Dr Software expense / Cr Prepaid software
frequency:       MONTHLY
method:          UNITS_OF_ACTIVITY
units_total:     365          # days in the term
period_units:    17 30 31 30 31 31 30 31 30 31 31 28 14

period end    days    amount
2026-03-31     17   1,676.71
2026-04-30     30   2,958.90
2026-05-31     31   3,057.53
...
2026-12-31     31   3,057.53
2027-01-31     31   3,057.53
2027-02-28     28   2,761.64
2027-03-14     14   1,380.87   # takes 0.05 of rounding

lines total:  36,000.00
prepaid left at 2026-12-31:  7,200.04

Rivane does not post the current and non-current split for a multi year prepayment today. The schedule’s pending lines are dated, so the amount due after the next twelve months is a sum of those lines, and the reclassification goes in as an ordinary journal entry.

A short checklist for software prepaids.

• Write the part month method into the close procedures in one line, and use it for every prepaid.
• Use days of service for any prepaid above your capitalization threshold that starts on a day other than the 1st. It needs no cutoff rule and it matches the contract.
• Set the schedule from the service dates in the contract, never from the invoice date or the payment date.
• For terms longer than a year, split the year end balance into the next twelve months and the rest.
• Keep the tax schedule separate from the book schedule, and record the difference.
• Tie the prepaid account to the sum of open schedules at every month end, and look at any schedule whose term has ended with a balance left on it.

Where this usually goes wrong.

• Dividing the amount by the number of calendar months the term touches. A twelve month contract that starts mid month becomes thirteen equal charges, and the first and last months carry a full month for half a month of service.
• Mixing methods across contracts. Days on one, half months on the next, and next month on a third means the prepaid balance moves with whoever set the schedule up.
• Starting the schedule on the invoice date. Renewals are often invoiced weeks before the term begins, and the expense should start when the service does.
• Leaving a multi year prepayment in current assets. The part that will be used after the next twelve months is non-current, and it is the line an auditor reads first on a three year deal.
• Copying the tax deduction into the books. The 12-month rule decides what the return may deduct, and it says nothing about the period the software serves.

What the audit evidence looks like.

• The contract or order form showing the service start and end dates, and the invoice and payment.
• The schedule for each prepaid, with its method, its lines, and the journal entry behind every posted line.
• A roll-forward of the prepaid account: opening balance, additions, amortization and closing balance, tied to the trial balance.
• For multi year terms, the year end split between current and non-current and the entry that records it.
• The written policy, so the auditor can test that every schedule follows the same method.

Count the days once, and the balance explains itself.

A mid month software contract has thirteen calendar months and two part months, and the method for those part months is the whole question. Counting days of service answers it without extra rules and puts the year end prepaid where the contract says it should be. An auditor then has one method to test across every schedule.

If you would like prepaid schedules like this one to post and roll forward inside the ledger, see how Rivane handles prepaids and accruals.

Sources

• IAS 1 Presentation of Financial Statements, as consolidated in Commission Regulation (EU) 2023/1803 on EUR-Lex. Read in the text for paragraph 66, which classifies an asset as current when, among other tests, the entity expects to realise it within twelve months after the reporting period or to consume it in its normal operating cycle, and classifies all other assets as non-current.
• Treasury Regulation 1.263(a)-4(f), the 12-month rule, read in full on the Legal Information Institute copy of 26 CFR. Source for the rule that a taxpayer is not required to capitalize amounts paid for a right or benefit that does not extend beyond the earlier of 12 months after the first date the benefit is realised or the end of the following taxable year, and for Example 10 on coordination with the economic performance rules of section 461.
• Truewind, prepaid amortization schedule entries and close risk (August 2026). Read as an example of what a search currently returns. It advises prorating a mid month start by the days covered, and its sample schedule shows a twelve month term across twelve monthly periods.
• Zenskar, how to record prepaid expense amortization (updated September 2026). Read as a second example: a 12,000 dollar policy starting 15 April, amortized with a half month in April and 1,000 dollars a month after that.
• Rivane amortization schedules, described from the product as built rather than from marketing copy. The schedule fields, the four methods, the rule that the lines sum exactly to the amount paid with the final line taking any rounding, the units of activity inputs and the daily posting sweep are described as they work in the product today.

A note on how this was researched. IAS 1 was read in the consolidated text of Commission Regulation (EU) 2023/1803, and Treasury Regulation 1.263(a)-4 was read in full. Paragraph numbers come only from text we read. The company and contracts are an example, and every number in the table was calculated in a script, which you can repeat with a spreadsheet. Nothing here is tax advice.

On embedded social posts: we looked for public posts from standard setters or practitioners on part month prepaid amortization and found none we could verify as current, relevant and authentic, so this article uses ordinary citations instead.