Prepaid Expenses :

Expenses which have been paid in advance are called as prepaid (unexpired) expenses.

Example:Trial Balance for the period ending 31st March, 2004 shows Rs.15,000 as insurance premium. Adjustment: Prepaid Insurance
premium Rs.7,500.

Adjusting Entry

Date	Particulars	L.F	Debit         Rs.	Credit Rs.
2004
31-Mar	Prepaid Insurance Premium A/c                                                                       Dr		7,500
	To Insurance Premium A/c			7,500
	(Insurance premium paid in advance)

 

Prepaid expenses will be shown

i) on the debit side of the Profit and Loss account by way of deduction from the particular expenses and

ii) on the assets side of the Balance Sheet.

Profit & Loss Account
for the year ending 31st March, 2004

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Insurance
premium A/c	15,000
Less: Prepaid	7,500	7,500

 

Balance Sheet as on 31st March, 2004

Liabilities	Rs.	Assets	Rs.
		Prepaid Insurance premium	7,500