What is prepaid expenses and journal entry?

Question

Accepted Answer

Prepaid expenses are advance payments made for goods or services that will be received in the future.

Prepaid expenses are considered as assets on the balance sheet.
They represent expenses that have been paid for but have not yet been used or consumed.
Journal entry for prepaid expenses involves debiting the Prepaid Expense account and crediting the Cash or Accounts Payable account.
As the prepaid expense is used or consumed, it is gradually recognized as an expense on the income statement.
Examples of prepaid expenses include prepaid rent, prepaid insurance, or prepaid subscriptions.

Accepted Answer

Prepaid expenses a/c Dr

To Cash or bank account

Ther is no effect on net asset value

After service incurred expenses account effect on profit and loss account and prepaid expenses account effect on balance sheet current assets

J.e: expenses account Dr

To prepaid expenses account

Net asset value will be decreased

Accepted Answer

It is a expense yet not due but paid in advance. JE is prepaid rent a/c dr to bank a/c and reversal entry would be rent a/c dr to prepaid rent A/c

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