![]() ![]() ![]() ![]() Prepaid Expenses are expenses that are paid more than the amount that the company owed. This can also be considered as an alternate form of cash (or cash equivalent), where the amount has been paid to the vendor providing that service. Therefore, it is recorded as a current asset. The payment for this particular service has already been paid for. Prepaid Expenses make the organization liable to receive a certain good or service. Prepaid Expenses are expenses that have been paid in advance, whereas accrued expenses are expenses that the organization owes. Prepaid Expenses and Accrued Expenses are the two categories of expenses that constitute expenses paid over (or under) the amount that was due for the particular year. In this case, accountants need to segregate the expenses into categories of expenses incurred in the current year and expenses that are supposed to be carried forward. This helps to capture the company’s profitability, over the given course of time, with much-needed accuracy.ĭuring the ordinary course of business, several transactions are taking place over the course of time, which is not really consistent with the amount of expenses incurred during that time frame. This is mainly done to match the revenues for a particular period with the subsequent expenses covered in the given time frame. Accrual-based accounting is used across all organizations today to apply the matching principle of accounting. ![]()
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