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The journal entry for the prepayment of advertising would involve a credit to cash, as cash is paid out, and a debit to the prepaid advertising account. On the same day, $8,400 insurance premium for a year was prepaid. Assume: ABC Company rented an Office Space to XYZ Company to. The perks of such expenses are yet to be utilised in a future period. A prepayment of advertising like any other prepayment is an asset of the business and is included in the balance sheet. As you understood from the information presented above, products or services thatprepaid expenses covered will be used over some time and, accordingly, this should beaccounted for this. Both lines of this entry are coded not reportable, and will be for the GST exclusive figure at the apportioned figure. Prepaid expense (also called prepayment) is an asset which arises when a business pays an expense in advance.. The Relevant Expenses Account With the amount that relates to the next year. We call these expenses as prepaid expenses. You would then have a general journal entry being done for each period that the prepaid expense covers, crediting the prepaid expense and debiting the actual expense account. Equipment account, which requires changes due to usage. Supposed that on January 25, 2016, ABC Company pays $1,000.00 for the rent for the month of February and March. We treat them as current assets. In Mr. John’s case, the journal entry would be: Enter payment to vendor using the account created in Step 1. Look at prepaid expense journal entry website for more information about prepaid expense journal entry. As an accountant and business owner, they commonly see and experience this kind of payment and wording in their day to day business operation. Types of Prepaid Expenses. Each month, an adjusting entry will be made to expense $10,000 (1/12 of the prepaid amount) to the income statement through a credit to prepaid insurance and a debit to insurance expense. The monthly payment for the rent is $500.00. The initial entry is a debit of $12,000 to the prepaid insurance (asset) account, and a credit of $12,000 to the cash (asset) account. Likewise, the company can make insurance expense journal entry by debiting insurance expense account and crediting prepaid insurance account. Journal entry of prepaid expenses? Accounting of journal entry of prepaid expenses is a must for preparation and finalization of accounting statements as well as to find out the actual profit/loss during the time by the entity. A prepaid expenses arises when the amount is paid in advance for the goods or services to be received in future. Only Rent for the 3 month period, i.e., Jan 19-Mar 19, will be booked as Expense, and the remaining 9 months rent will be shown as Prepaid Expenses under the head Other Current Assets in the Asset Side of the Balance Sheet.. Journal Entries From the QuickBooks Company menu, select Make General Journal Entries. Example:- Advance rent from its tenant of 10,000 Entry :- At the time of receiving advance 1. Example: On 01/08/2017, rent received for the let-out building for the period of one year in advance. Inother words, a journal entry for prepaid expenses will be under current assets, whiledeferred expense account is under long-term liabilities. The following journal entry is made to accommodate a prepaid expense: Dr. Prepaid Expense A/c (a newly opened account) Cr. prepaid expenses are those expenses for which cash is paid in advance but if there is no cash payment then that is not prepaid expense and hence no entry required. Create a recurring journal entry: Create a recurring journal entry for advance payments, so you don’t have to remember to process a journal entry each month. Insurance expense journal entry. So in this transaction, we will treat three accounts with the golden rules of accounting shown as following. 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