What Are Prepayments - Definition - Meaning - Examples - Explanation
Prepayments are Advance Payments or Deferred Expenses paid in advance against which benefits or services are still not received by the business during or at the end of accounting. Prepayments are existed because of Accrual Basis of Accounting System . Prepayments are also known as Deferred Expenses. These include both Prepaid Expenses and Deferred Expenses or Expenditures that can be expired for more than one year or not. For Example, When the company paid advance rent to rental company for five months of Rs. 100000, then it is called Prepayments (Here Prepayment Rent) against which services like housing facility, car facility, etc., are still not received by the business during the accounting period. Prepayments are categorized under both Current Assets and Non Current Assets / Fixed Assets on Balance Sheet if these are expired for more than one year. Prepayments Journal Entry When these are incurred, we debit it and c...