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Prepaid Expenses..........

vikas gupta (c.a final....) (714 Points)

02 April 2011

Why are prepaid expenses considered as assets?

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10 Replies

Lalit Kumar (Vice President ) (2213 Points)
Replied 02 April 2011

Tat cos we have paid in ADVANCE.. and so in future we wont any liablity and when the event actually occurs, the ASSET is reversed..

Entries

Prepaid Exp A/c Dr

To Bank A/c

(when paid in advance)

On date of event

P& l A/c Dr

To Prepaid Expense A/c

2 Like

Faiz Ahmed ( Article Trainee) (1731 Points)
Replied 02 April 2011

Hi!!

First of all let me tell you the meaning of Asset. Asset is a resource which will give future economic benefits to an enterprise.

Here, prepaid expenses are incurred in past & its economic benefit will be recieved in future. For example, prepaid insurance paid today will give/accrue its benefit in future only to the enterprise.

Moreover, if you have paid an expense(prepaid), you need to record that expense as current asset by applying rule of representative personal A/c( Dr. the receiver of the benefit). It means prepaid expense paid to say X is represented by a representative personal A/c(prepaid exp A/c) who is the receiver of the benefit given by entity as on date.

1 Like

Ashish Jain (.Net Developer) (641 Points)
Replied 02 April 2011

which payment i have given in advance but service will get in future with respect of this payment. we shall get service or not it is contingent if not than i shall get my payment which give so it is asset.

1 Like

Sandeep Pandey (CA FINAL) (1306 Points)
Replied 03 April 2011

ya its type of curresnt assets and advance..........as we are making payment for any expenses in advance ..............and it also to be deducted from the expense under which it is already added...................

vikas gupta (c.a final....) (714 Points)
Replied 03 April 2011

Ahmad bhai i hv no words to thank u....u r back in action....u r god for all students...thnx

1 Like

Faiz Ahmed ( Article Trainee) (1731 Points)
Replied 03 April 2011

Originally posted by : ....viru....
	Ahmad bhai i hv no words to thank u....u r back in action....u r god for all students...thnx

Thnx Viru for your heart touching comment. I am not God yaar, just a creation of God..

God Bless You in all your efforts..

All the best.

Kamal (article) (165 Points)
Replied 10 April 2011

Originally posted by : Faiz Ahmed
	Hi!! First of all let me tell you the meaning of Asset. Asset is a resource which will give future economic benefits to an enterprise. Here, prepaid expenses are incurred in past & its economic benefit will be recieved in future. For example, prepaid insurance paid today will give/accrue its benefit in future only to the enterprise. Moreover, if you have paid an expense(prepaid), you need to record that expense as current asset by applying rule of representative personal A/c( Dr. the receiver of the benefit). It means prepaid expense paid to say X is represented by a representative personal A/c(prepaid exp A/c) who is the receiver of the benefit given by entity as on date.

can we say that prepaid insuance is a fictitous asset????

Kamal (article) (165 Points)
Replied 10 April 2011

Some one Suggest a book for Auditin SA's

Sahil Chopra (Cheif Accountant) (21 Points)
Replied 03 December 2012

If i purchased some chemicals say for USD 12000 to be used in next 6 months, then is it fine to post same as prepaid expense or it should be transfered to stock???

Warsidi CA (2 Points)
Replied 08 March 2017

Originally posted by : Sahil Chopra
	If i purchased some chemicals say for USD 12000 to be used in next 6 months, then is it fine to post same as prepaid expense or it should be transfered to stock???

if the chemicals are for use, I mean they're not for sale, you are better to treat them as a prepaid expense (ie supplies). it does't matter, however, to record it directly as an expense (P/L) if the 6-month need is immaterial. it's a matter of practicallity. an adjusting entry is required at the year-end to make sure that the expense is recognized in the proper period. you might find it helpful to read more on how to debit and credit prepaid expenses and the adjusting entries.