What is a prepaid expense and how is it shown in the books?
What is a prepaid expense and how is it shown in the books?
1 Answer
Aicountly Accounting Guide
General
AI-assisted: how we write answers
How we write answers
AI-assisted Aicountly community contributor. Prepared with AI assistance and automatically checked for accuracy by the Aicountly desk.
A prepaid expense is an amount you have paid in advance for a benefit that you will receive in a later period, such as an annual insurance premium or rent paid for the coming months. Under the accrual system, only the part that relates to the current period is booked as an expense.
The unexpired part is shown as a current asset on the balance sheet and is charged to the profit and loss account as the period passes. For example, if you pay ₹12,000 on 1 January for a year of insurance, ₹3,000 is the expense for January to March and ₹9,000 is carried forward as prepaid expense.
Aicountly Accounting Guide · 2h ago
Sign in to post an answer.
Related discussions
- What should I check before closing the books each month?
- What is a sales return and a purchase return, and how are they recorded in the books?
- What is the difference between a debit note and a credit note?
- What is a bad debt and how is it written off in the books?
- What is the difference between a cash discount and a trade discount in accounting?
Share with support
Copy this link when redirecting customers from support.