Prepaid Expense means

Expense of future year incurred in current year

 

Example

Suppose expense of whole year of 12000 paid together together at one time

In this case,amount of prepaid depends upon type of closing 

TYPE OF CLOSING AMOUNT OF PREPAID
Monthly Closing

11 month expense is Prepaid

(12000*11/12=11000)

Remaining 1 month is expense

(12000*1/12=1000)

Quarterly Closing

9 month of total amount is Prepaid

(12000*9/12=9000)

Remaining 3 month is expense

 (12000*3/12=3000)

Annual Closing

In this case,

Prepaid is 0 

Whole 12000  is expense of current year

 

 

Entries

When  Bill Received

Exp Dr

Prepaid Exp Dr

     To Party

 

Party Dr

    To Bank

 

Entry for write off of Prepaid

Exp Dr

    To Prepaid Exp

 

 

 

Assignment

Pass Entries assuming monthly closing

1. The company paid Rent for 3 months in Advance on 1 April @ 20000 pm to DLF India ie Rs 60000

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2.Resolve Q1 assuming rent was paid on 5 April

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3. The Company entered into AMC Contract (Annual Maintenance Contract) for its computers of Rs 30000 for whole year with Venus Computer Services from 10 April 2016 to 9 April 2017

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  1. Accounts and Finance
  2. Step 3 Passing Book Closure Entries
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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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