Quick Answer: What Is An Example Of A Prepaid Expense?

What are some examples of prepaid expenses?

The following list shows common prepaid expenses examples:Rent (paying for a commercial space before using it)Small business insurance policies.Equipment you pay for before use.Salaries (unless you run payroll in arrears)Estimated taxes.Some utility bills.Interest expenses..

Is prepaid expense an asset?

A prepaid expense is a type of asset on the balance sheet that results from a business making advanced payments for goods or services to be received in the future. Prepaid expenses are initially recorded as assets, but their value is expensed over time onto the income statement.

Paying a retainer fee to an attorney is an advance payment toward legal services that the company has a reasonable expectation of incurring. … When the legal services are rendered, expense the retainer with a credit to prepaid legal and a debit to the legal expenses account.

What qualifies as a prepaid expense?

Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or have not yet expired. … As the amount expires, the current asset is reduced and the amount of the reduction is reported as an expense on the income statement.

What are the 4 types of expenses?

You might think expenses are expenses. If the money’s going out, it’s an expense. But here at Fiscal Fitness, we like to think of your expenses in four distinct ways: fixed, recurring, non-recurring, and whammies (the worst kind of expense, by far).

What are the monthly expenses?

NeedsMortgage/rent.Homeowners or renters insurance.Property tax (if not already included in the mortgage payment).Auto insurance.Health insurance.Out-of-pocket medical costs.Life insurance.Electricity and natural gas.More items…

Is Accounts Payable a debit or credit?

Since liabilities are increased by credits, you will credit the accounts payable. And, you need to offset the entry by debiting another account. When you pay off the invoice, the amount of money you owe decreases (accounts payable). Since liabilities are decreased by debits, you will debit the accounts payable.

How do you list expenses?

Steps to Track Your ExpensesWrite down your monthly income.Write out your monthly expenses. Start with food, shelter (your mortgage or rent plus utilities), clothing, and transportation. … Make sure your income minus your expenses equals zero.

Can a prepaid expense be a noncurrent asset?

Prepaid expenses are listed on the balance sheet as a current asset until the benefit of the purchase is realized.

Is prepaid rent a liability or asset?

Prepaid Rent vs. Prepaid rent is a balance sheet account, and rent expense is an income statement account. Prepaid rent typically represents multiple rent payments, while rent expense is a single rent payment. So, a prepaid account will always be represented on the balance sheet as an asset or a liability.

How do you audit a prepaid expense?

Well, GAAP dictate that expenses that are paid before they’re due belong on the balance sheet. Whenever your audit client pays expenses in the current period that won’t be matched with revenue until subsequent periods, it’s a prepaid expense or deferred charge.

What is expenses and examples?

An expense is the cost of operations that a company incurs to generate revenue. As the popular saying goes, “it costs money to make money.” Common expenses include payments to suppliers, employee wages, factory leases, and equipment depreciation.

What are the 3 categories of expenses?

There are three major types of expenses we all pay: fixed, variable, and periodic.

How do you determine Prepaid expenses?

Prepaid expenses are initially recorded as assets. Correctly identifying and, because they have future economic benefits, and are expensed at the time when the benefits are realized (the matching principle. Revenues and expenses are matched on the income statement for a period of time (e.g., a year, quarter, or month).