![]() ![]() While the initial payment is recorded on the balance sheet as an asset, the expense is not recorded until it is actually incurred and is reflected on the income statement. Pre-paid expenses appear last for that reason. Prepaid expenses are expenses that have been paid in advance but have not yet been incurred. The company's current assets are listed from most liquid to the least liquid. Every month, when you get the work you paid for, you reduce the prepaid expense entry by 400. had $10,000 in pre-paid expenses as of March 31, 2012. You shift 2,400 out of Cash on the balance sheet and report 2,400 as a Prepaid Expense instead. The balance sheet below shows that ABC Co. Credits received this way are discounted according to any existing contractual terms. If necessary, a company can terminate pre-paid contracts and request refunds for amounts it has pre-paid. Compared to other current assets such as cash and accounts receivable, pre-paid expenses have low liquidity because they are difficult to convert into cash and their cash benefit is usually delayed. In the accounting cycle, these advance payments are recorded as prepaid expenses. Pre-paid expenses are categorized as current assets because they are used, replaced or converted into cash within a normal operating cycle, typically 12 months. Find step-by-step Accounting solutions and your answer to the following textbook question: The current asset section of Guardian Consultants balance sheet consists of cash, accounts receivable, and prepaid expenses. Examples include pre-paid insurance, rent paid in advance, as well as legal and security services. Pre-paid expenses are intangible assets a company has already paid for and expects to benefit from in the short term. Growth & Transition Capital financing solutions Kauffman Fellows Program Partial Scholarship Venture Capital Catalyst Initiative (VCCI) Industrial, Clean and Energy Technology (ICE) Venture Fund
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