Prepaid Expense:
This is an expense relating to the next year that has been Paid in advance during the current year. In such a case, this amount should not be treated as an expense for this year. It should be treated as an asset in the current year as the services will be received only in the next year. ( but the payment has been made in this year). It is a representative personal account which is just like a debtor. And prepaid expense account will be debited.
Example :
Insurance is prepaid for 2013 in 2012 of rs 3000. Then entry will be made as follow:
Prepaid insurance a/c. 3000
To insurance premium a/c. 3000.
(Insurance paid in advance )
This is an expense relating to the next year that has been Paid in advance during the current year. In such a case, this amount should not be treated as an expense for this year. It should be treated as an asset in the current year as the services will be received only in the next year. ( but the payment has been made in this year). It is a representative personal account which is just like a debtor. And prepaid expense account will be debited.
Example :
Insurance is prepaid for 2013 in 2012 of rs 3000. Then entry will be made as follow:
Prepaid insurance a/c. 3000
To insurance premium a/c. 3000.
(Insurance paid in advance )
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