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which of the following accounts is considered a prepaid expense?

What is considered a prepaid expense? Initial Recognition of Prepaid Expenses. A prepaid expense is an advance payment made with a reasonable, certain anticipation of a future expense. If the user has multiple prepaid expenses to track, it is suggested that they create sub-accounts of the Prepaid Expenses account in order to track each separately. *82. A manufacturer would record an expense when it pays its employees for producing its products. Prepaid expenses are future expenses that have been paid in advance. Generally, this is an Other Current Asset account. Find Find arrow_forward. In accrual accounting you are trying to accurately reflect revenue and expenses in the periods they are generated or used, no matter when payments are actually received or paid. Expenses are recognized when they are incurred regardless of when paid. 2. If you paid $600 for a three‑year service contract for office equipment in 2019, you can deduct $400 in 2019. Cash: ... Prepaid expenses: Prepaids are any expense the business pays for in advance, such as rent, insurance, office supplies, postage, travel expense, or advances to employees. Topic: Closing the Temporary Accounts 75. QuickBooks Desktop for Mac. Like accounts receivable, prepaid expenses are assets because they are a claim to assets. If six months worth of insurance is paid in advance, the company is entitled to insurance (a service) for the next six months in the future. Adjusting entries that should be reversed include those for prepaid or unearned items that d. create an asset or a liability account and were originally entered in a revenue or expense account. Find Find arrow_forward. Equipment D. Prepaid Rent 27. You can think of prepaid expenses as costs that have been paid but have not yet been used up or have not yet expired. Prepaid rent is a balance sheet account, and rent expense is an income statement account. A) Cash, Retained Earnings, Wages Payable . C. Dividends. B) Prepaid Insurance, Property, Plant & Equipment, Fees Earned. ISBN: 9781947172685. Which of the following account groups are all considered nominal accounts? For example, sales would be listed before non-operating income. A prepaid expense is an expense which has been paid in advance. D. Earned Revenue. Welcome to Sciemce, where you can ask questions and receive answers from other members of the community. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Understand Difficulty: Easy Learning Objective: 05-04 Explain the purposes of closing entries; prepare these entries. The profit or as deductions from the total revenue. Interest Revenue B. Prepaid Insurance C. Insurance Expense D. Supplies Expense. Common prepaid expenses include rent, insurance, interest, and the cost of obtaining a lease or loan. Prepaid Rent Journal Entry. If you use the accrual method of accounting, claim any expense you prepay in the year or years in which you receive the related benefit. For this transaction the Accounting equation is shown in the following table. They are also known as unexpired expenses or expenses paid in advance. After quarter 1, the Prepaid Insurance account would have a value of $9,000, and by the end of the fourth quarter, the Prepaid Insurance account would have a balance of 0. Following accounting entry will be recorded in the year 2017: This asset will be recognized as an expense in the next accounting year to which the rental expense relates. Principles of Accounting Volume 1. C) Capital Stock, Dividends, Income Summary. Inventory – Inventory consists of goods owned a company that is in the business of selling those goods. D) Rent Revenue, Fees Earned, Miscellaneous Expense. Nominal accounts are … Individuals and businesses alike can accrue prepaid expenses. B. Unearned Revenue. Two methods to account for prepaid expenses: balance sheet approach and income statement approach. When coding supplier invoices for entry into the accounting system, obtain written approval from the assistant controller that a billing should be coded as a prepaid expense. A. 19th Edition. Because the rent payment will be used up in the current period (the month of June) it is considered to be an expense, and Rent Expense is debited. In some cases, part or all of the expense accounts simply are listed in alphabetical order. Examples of intangible assets include goodwill, trademarks, copyrights, patent rights and brand recognition etc. … Create an account to track the prepaid expense. In this case one asset (pre paid rent) has been increased by 3,000 and the other (cash) has been reduced by a similar amount. O Prepaid accounts are current expense accounts and are reported on the income statement. Publisher: OpenStax College. An amortization schedule that corresponds to the actual incurring of the prepaid expenses or the consumption schedule for the prepaid asset is also established. A. Prepaid Expenses. 3. useful in simplifying the recording of transactions in the next accounting period. 19th Edition. Tangible assets are physical items such as building, machinery, inventories, receivables, cash, prepaid expenses and advance payments to other parties. Otherwise, the default entry is to record an expenditure as a expense. For example, if the accounting period is quarterly, for the $12,000 pre-payment, each quarter would see $3,000 move from the Prepaid Insurance asset account, to the Insurance Expense account. Lv 7. Prepaid expenses are shown in the assets section on the balance sheet. Relevance. Principles of Accounting Volume 1. A prepaid expense, such as prepaid rent, is an asset that turns into a cash expense as the rent is used up each month . Revenue and expense accounts tend to follow the standard of first listing the items most closely related to the operations of the business. A business has an annual premises rent of 60,000 and pays the landlord quarterly in advance on the first day of each quarter. It has a prepaid expense of 15,000. Nature of prepaid expenses Prepaid expenses are expenses paid for in advance and recorded as assets before they are used or consumed. Each month, the firm would deduct $2,000 from its prepaid expenses on the balance sheet, transferring the amount to a monthly rent expense line on the income statement.By the end of the year, the full $24,000 would show as various expenses on the income statement, and there would be $0 left in the prepaid expense asset account shown in the current asset section of the balance sheet. {{ links […]

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