What are Prepaid Expense?

Transcript

What are Prepaid Expense What is Expense? It is the cost of purchasing a good or a service It is the cost incurred for earning revenue(income) What is Prepaid Expense? It is an expense that has been paid in Advance Benefit of this expense will be received in next year Is Expense Part of Profit and Loss or Balance sheet? It is normally a part of Profit and loss But we have paid it advance for next year also, it is shown in balance sheet as Prepaid Expense Example 1 Internet Bill of Reliance Received on 1 March for Rs 3000 If this bill is for 3 Months (March,April and May, then it is expense for March (Rs 1000) And Prepaid for April and May (Rs 2000) RELIANCE JIO 01-Mar RELIANCE JIO 01-Mar Bill to My Co Bill to My Co Internet Charges 3000 Internet Charges 3000 (For March) (For March-May) I I This is only This is for 3 Months of 1 Month One month Current Year, (Current year) 2 month next year( Apr-May) I I So it is Normal Expense It is Expense for 1 Month Shown In P&L and Prepaid Expense for 2 Shown Month in Balance Sheet (Asset) Difference between Normal Expense and Prepaid Expense Expense Paid Prepaid Expense It is the cost of It is the cost of purchasing a good purchasing a good or or service which a service of future year has been paid paid in current year It is shown in Profit Current year amount is and loss as expense shown as expense and and not shown as Liability in Future year amount is shown as Balance sheet Prepaid Expense in Balance sheet as Asset How is Expense Shown in Balance sheet/Profit and loss A/c PROFIT AND LOSS Expense Amount Income Amount Telephone Expense xxx Balance sheet Liabilities Amount Assets Amount Not shown How is Prepaid Expense Shown in Balance sheet/Profit and loss PROFIT AND LOSS Expense Amt Income Amt Total Expense paid 3000 less: Prepaid Expense -2000 Expense for current year 1000 Balance sheet Liabilities Amt Assets Amt Prepaid exp 2000