Prepaid account in accounting is considered what?

10
Tomasa Schamberger asked a question: Prepaid account in accounting is considered what?
Asked By: Tomasa Schamberger
Date created: Sun, Mar 28, 2021 4:20 PM
Date updated: Fri, Sep 9, 2022 10:27 AM

Content

Top best answers to the question «Prepaid account in accounting is considered what»

  • In other words, prepaid expenses are expenditures paid in one accounting period, but will not be recognized until a later accounting period. Prepaid expenses are initially recorded as assets, because they have future economic benefits, and are expensed at the time when the benefits are realized (the matching principle).

9 other answers

In other words, prepaid expenses are expenditures paid in one accounting period, but will not be recognized until a later accounting period. Prepaid expenses are initially recorded as assets, because they have future economic benefits, and are expensed at the time when the benefits are realized (the matching principle).

Definition of Prepaid Expenses. Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or have not yet expired. Generally, the amount of prepaid expenses that will be used up within one year are reported on a company's balance sheet as

A prepaid expense is a type of asset on the balance sheet that results from a business making advanced payments for goods or services to be received in the future. Prepaid expenses are initially...

Prepaid Accounts 1. Any account marketed or labeled as “prepaid” that is redeemable at multiple, unaffiliated merchants for goods or... 2. Any account issued on a prepaid basis in a specific amount – or not issued on a prepaid basis but capable of being... 3. A payroll card account 4. A government ...

A prepaid expense is an expenditure paid for in one accounting period, but for which the underlying asset will not be consumed until a future period. When the asset is eventually consumed, it is charged to expense. If consumed over multiple periods, there may be a series of corresponding charges to expense.

A prepaid account tracks expenses that will be made in the future. Example: You have a $1000 monthly premium for insurance. At the beginning of the year you credit Cash $1,200 and debit Prepaid Insurance $1,200. Now that money is set aside to make monthly payments.

Example 2. You prepay $9,000 of rent for six months. You paid for the space, but you have not used it yet. So, you need to record the amount as a prepaid expense. First, debit the Prepaid Expense account to show an increase in assets. Also, credit the Cash account to show the loss of cash.

From the perspective of the buyer, a prepayment is recorded as a debit to the prepaid expenses account and a credit to the cash account. When the prepaid item is eventually consumed, a relevant expense account is debited and the prepaid expenses account is credited. Buyers can overuse the prepaid expenses account, which results in the tracking of a large number of small prepaid items.

Definition of Prepaid Insurance. Prepaid insurance is the portion of an insurance premium that has been paid in advance and has not expired as of the date of a company's balance sheet. This unexpired cost is reported in the current asset account Prepaid Insurance.

Your Answer