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Prepaid Expenses

All those expenses which are due next year but paid for in advance during the current year are termed as Prepaid Expenses.

Adjustment Entries

 

 Prepaid Expense Account    Dr.
  Expense Account  
(For expense paid in advance)  

Accounting Treatment

The concerned expense will be deducted by the prepaid amount in the Trading Account or Profit & Loss account.
Prepaid expenses are assets for the business thus it will appear under the Current Assets in the Balance Sheet.


Note: If the Prepaid expense is given inside the Trial Balance, then the prepaid expense will only appear in the Current Asset of the Balance Sheet.

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