Once these expenses are incurred, the current asset account will then be reduced, whilst the income statement will acknowledge the expenses during that accounting period. In accounting, these early payments are termed “prepaid expenses” and are recognised as current assets on the company’s balance sheet. Some payments are made early by companies at certain times due to the future advantages they bring. – Once the expense has been incurred and the asset is realised, an entry can then be made to the profit and loss statement’s expense account, whilst the balance sheet’s prepaid asset account may be deducted equally. – According to the standards set by the Generally Accepted Accounting Principles (GAAP), expenses that have yet to be incurred cannot be documented on the company’s profit and loss statement. – As long as the prepaid expense will be incurred within a year, it is classified as a current asset and thereby initially noted on the firm’s balance sheet as a prepaid asset account. – Notable examples of prepaid expenses would be rent and insurance payments. – Prepaid expenses are defined as expenses incurred for assets that the company will be receiving at a later date.
0 kommentar(er)
