#Prepaid expenses full
Let's say a business is offered a 15% discount on office space if it pays the full 12-month lease upfront, rather than a portion each month, for a total of $24,000 including the discount. When the bookkeeper is preparing January 2023 month-end journal entries, they debit the “insurance expense” account and credit the “prepaid insurance” account for the amount of insurance coverage used in January 2023, which is $200, as $2,400 per year divided by 12 months is $200 per month. The policy covers the business from January 1, 2023, until December 31, 2023. Let's say a company purchases a $2,400 insurance policy in December 2022 for the following year. Prepaid expense bookkeeping examples Insurance policy Below are four examples of common prepaid expenses and how a business owner accounts for them when doing the books: They'll do this by debiting the appropriate expense account and crediting the prepaid expense account.
Such prepaid account records are easy to create with cloud-based bookkeeping software, such as Xero and QuickBooks.Īt the end of an accounting period, typically monthly, quarterly and yearly, the bookkeeper records the use of the goods and services. A bookkeeper first needs to ensure they have a proper prepaid expense account record to enter the required information. Prepaid expenses are treated as current assets on the balance sheet. Insurance policy premiums, rental and lease payments, and legal and accounting retainers, are common types of prepaid expenses. When a customer pays for goods or services before receiving them, the costs are considered prepaid expenses.
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