2 Methods of Prepaid Expenses For Accounting Treatment
There are two methods of recording Prepaid Expenses in Accounting. Both are explained below: 1. When Prepaid Expenses Initially Recorded as An Expense / Prepaid Expenses Income Statement Approach 2. When Prepaid Expenses Initially Recorded as Current Asset / Prepaid Expenses Balance Sheet Approach 1. Under first method, we initially recorded prepaid expenses as an Expense and debit the relevant expenses account such as Rent Expense Account and credit the cash account. At the end of accounting period, the portion of that expense (Rent) that is related to next year or still not expired or against which still benefits are not received is transferred to Prepaid Expense Account ( Prepaid Rent Here) as a Current Asset on Balance Sheet . For Example, If we paid rent of Rs. 60000 (Rs. 5000 Per Month) as Prepaid Rent or makes advance payment to tenant company for 12 months on 1 st April, 2017, then we initially records it as an Rent Expense...