Prepaid expenses, Cost Accounting

Expenses paid in previous of their use or consumption is termed as prepaid expenses. At the ending of the year, a portion of the payment keeps unconsumed and is treated like an asset, as its benefit is to be availed of in future. For pre-paid expense, the adjustment entry is made through debiting prepaid expense account and crediting expense account. If such item shows on the debit side of the trial balance, it will be demonstrated only on the assets side of the balance sheet. This will not show in Profit and Loss Account at all.

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