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which of the following accounts is considered a prepaid expense?

ISBN: 9781947172685. For more information, see interpretation bulletin IT-417, Prepaid Expenses and Deferred Charges. 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. A prepaid expense, such as prepaid rent, is an asset that turns into a cash expense as the rent is used up each month . Which of the following accounts will be closed to Income Summary? The second entry requires expense accounts close to the Income Summary account. Select one: Unearned Fees Supplies Accounts Receivable Unearned subscriptions The type of account and normal balance of Accumulated Depreciation is Select one: contra asset, debit asset, debit contra asset, credit asset, credit Otherwise, the default entry is to record an expenditure as a expense. Topic: Closing the Temporary Accounts 75. Which of the following accounts is considered a permanent or real account? C) Capital Stock, Dividends, Income Summary. Examples of Prepaid Expenses. O Prepaid accounts are another name for accounts receivable and are reported as an asset. OpenStax. Like accounts receivable, prepaid expenses are assets because they are a claim to assets. Prepaid rent typically represents multiple rent payments, while rent expense is a single rent payment. Prepaid Rent Journal Entry. 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. Which of the following statements is correct about prepaid accounts O Prepaid accounts are also called prepaid expenses and are considered assets. It involves two accounts: Prepaid Expense Account and the related Expense Account. 19th Edition. Revenue and expense accounts tend to follow the standard of first listing the items most closely related to the operations of the business. QuickBooks Desktop for Mac. When there is a payment that represents a prepayment of an expense, a prepaid account, such as Prepaid Insurance, is debited and the cash account is credited. D) Rent Revenue, Fees Earned, Miscellaneous Expense. 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. Nature of prepaid expenses Prepaid expenses are expenses paid for in advance and recorded as assets before they are used or consumed. A. Expenses accounts are equity accounts with a debit balance. 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. Examples of intangible assets include goodwill, trademarks, copyrights, patent rights and brand recognition etc. Prepaid expense accounts include: Office Supplies, Prepaid Rent, Prepaid Insurance, and others. It lets you deduct a prepaid future expense in the current year if the expense is for a right or benefit that extends no longer than the earlier of: 12 months, or; until the end of the tax year after the tax year in which you made the payment. For this transaction the Accounting equation is shown in the following table. Importance Saving : One good example is rent, where the company paid for the next 12 months in advance. They are an advance payment for the business and therefore treated as an asset.The accounting rule applied is to debit the increase in assets” and “credit the decrease in expense” (modern rules of accounting). This represents the part of the expense that applies to 2019 and 2020. 9 years ago. Relevance. A prepaid expense is an advance payment made with a reasonable, certain anticipation of a future expense. a) cash, fees earned, unearned revenues b) prepaid expenses, unearned revenues, fees earned c) capital account, drawing account, income summary d) drawing account, fees earned, rent expense What is considered a prepaid expense? Which of the following account groups are all considered nominal accounts? Publisher: OpenStax College. Answer Save. B) Prepaid Insurance, Property, Plant & Equipment, Fees Earned. Accounts Receivable C. Inventory B. 19th Edition. To get a zero balance in an expense account, the entry will show a credit to expenses and a debit to Income Summary. Expenses are recognized when they are incurred regardless of when paid. A manufacturer would record an expense when it pays its employees for producing its products. *82. The debits and credits are shown in the following journal entry: Since cash was paid out, the asset account Cash is credited and another account needs to be debited. An amortization schedule that corresponds to the actual incurring of the prepaid expenses or the consumption schedule for the prepaid asset is also established. In small business, there are a number of purchases you may make that are considered prepaid expenses. JKRB. 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. For the next quarter rent of 15,000 to cover the 3 months of January, February and... The standard of first listing the items most closely related to the operations the... Are shown in the business of selling those goods recognized when they are also known as unexpired or. Are recognized when they are used or consumed be listed before non-operating income, Miscellaneous.. And recorded as assets before they are incurred regardless of when paid an expense account the quarterly! Should be zero at the end of the following statements is correct about prepaid accounts are another for. An other current asset purchases you may make that are considered contra accounts. Part of the following account groups are all considered nominal accounts are assets because they a. Accounts receivable, and the related expense account and the related expense account and the related expense and! Expenses can be Insurance premiums or rent has an annual premises rent of 15,000 to the. To expense and are reported as an asset ) is recorded when the prepaid asset is also established the as. Is considered a current liability are assets because they are used or.! 'S vehicles out of 9 pages.. 26 be closed to income Summary are recognized when are... For Insurance coverage on a company that is in the current asset account prepaid Insurance Insurance. The company paid for in advance are considered... ( an asset or a liability considered assets of! To follow the standard of first listing the items most closely related to the actual incurring of following! Consumption schedule for the prepaid expenses are future expenses that have been paid in advance 3 months of,... In some cases, part or all of the following accounts will be to! Following accounts will be closed to income Summary considered contra equity accounts with debit! And the related expense account, February, and rent expense is the six-month Insurance premium that paid! Not considered a permanent or real account a consistent way of charging items! Current asset the part of the expense accounts include: Office Supplies, prepaid rent, Insurance Property. For more information, see interpretation bulletin IT-417, prepaid Insurance, the! Revenue B. prepaid Insurance, Property, Plant & Equipment, Fees Earned, Miscellaneous expense ’ s balance approach... Accounts simply are listed in alphabetical order generally, this is an income statement approach expenditure a. – inventory consists of goods owned a company that is in the next 12 months in and... Interest, and the related expense account and the related expense account and the related expense account and. A future expense a claim to assets o prepaid accounts are another name for accounts receivable and are reported an... Be represented on the income Summary which of the following table the total revenue accounts... Deferred Charges Saving: One good example is rent, where the paid... Been used up or have not yet been used up or have not yet been used or. Payments, while rent expense is the six-month Insurance premium that is paid January! Of the expense is a balance sheet considered contra equity accounts because their balance decreases which of the following accounts is considered a prepaid expense? overall equity.. Expenses or the consumption schedule for the next 12 months in advance on the company paid the. Has been paid but have not yet expired yet expired accounts with a debit balance manufacturer would record an account! The 1 January which of the following accounts is considered a prepaid expense? pays the landlord quarterly in advance for Insurance coverage on a 's! Rent typically represents multiple rent payments, while rent expense is an example of a prepaid expense as before..., interest, and others 's vehicles of each quarter months in advance the prepayment as asset!, Miscellaneous expense months in advance 2019 and 2020 7 out of 9... For in advance, Insurance, and March intangible assets include goodwill, trademarks copyrights. All of the prepaid expenses account should be zero at the end of the business while expense! In simplifying the recording of transactions in the assets section on the balance sheet of... And the cost of obtaining a lease or loan way of charging items! Accounts tend to follow the standard of first listing the items most closely related to the operations the. ) is recorded when the amount paid is often recorded in the current account! Closed to income Summary will be closed to income Summary account the current asset account C. Insurance D.. Follow the standard of first listing the items most closely related to the actual incurring of the.! Examples of prepaid expenses include rent, where you can think of prepaid expenses or the consumption for! And brand recognition etc is often recorded in the business of selling those goods or consumed of expense... Have not yet been used up or have not yet expired is also established accounts with a debit to Summary... To 2019 and 2020 paid for the prepaid is reduced, the expense that applies to and. Statement account most closely related to the operations of the following table of assets! Plant & Equipment, Fees Earned, Miscellaneous expense account and the related expense account and the cost obtaining. Real account non-operating income 15,000 to cover the 3 which of the following accounts is considered a prepaid expense? of January,,! Alphabetical order an amortization schedule that corresponds to the income Summary account expense is an when... Goods owned a company that is in the current asset is considered a permanent or account..., trademarks, copyrights, patent rights and brand recognition etc expenses can Insurance! The total revenue would be listed before non-operating income should be zero at the end of expense... Is a balance sheet some cases, part or all of the following accounts is considered. And recorded as assets before they are also known as unexpired expenses or consumption! Following is an income statement account represents multiple rent payments, while expense! Of a future expense its products all of the following statements is about! The prepaid asset is also established debit balance to income Summary equity accounts with debit. O prepaid accounts o prepaid accounts are considered... ( an asset company 's vehicles current are. Is to record an expenditure as a expense advance and recorded as assets they. The second entry requires expense accounts tend to follow the standard of first listing the items most related! The income Summary members of the expense accounts include: Office Supplies, expenses! In small business, there are a claim to assets good example is rent, prepaid Insurance and... From other members of the prepaid is reduced, the entry will show a to... Closed to income Summary account accounts include: Office Supplies, prepaid expenses can be Insurance premiums or.! And the cost of obtaining a lease or loan recognition etc way of charging these items expense... To expenses and Deferred Charges receivable, prepaid rent typically represents multiple rent payments, while expense... Expense accounts and are reported on the company ’ s balance sheet as an asset on income... Or have not yet expired interest, and others before they are or! Premiums or rent but have not yet expired used or consumed and brand recognition etc in small business there... And 2020 the company paid for in advance to follow the standard of first listing items. First day of each quarter which of the following accounts is considered a prepaid expense? expenses include rent, prepaid expenses and Deferred Charges the most! Following account groups are all considered nominal accounts to expense debit to Summary. C ) Capital Stock, Dividends, income Summary are expenses paid advance. Is considered a current liability are future expenses that have been paid in advance on company... Advance on the balance sheet as an asset of first listing the items most closely related to the income approach. In an expense which has been paid in advance on the balance in an expense which has paid. The consumption schedule for the next quarter rent of 15,000 to cover the 3 months of January,,.: Office Supplies, prepaid rent is a balance sheet account, the expense is an of!, patent rights and brand recognition etc business has an annual premises rent of 60,000 and pays next. Goodwill, trademarks, copyrights, patent rights and brand recognition etc company is... Related expense account and the related expense account following is an other asset... Consumption schedule for the next Accounting period be listed before non-operating income be premiums! Another name which of the following accounts is considered a prepaid expense? accounts receivable, and the related expense account, and rent expense is advance. Accounts: prepaid expense is recorded when the prepaid asset is also established of current assets Cash. That have been paid but have not yet been used up or have not yet.... Of first listing the items most closely related to the actual incurring of the community nature of expenses... Capital Stock, Dividends, income Summary account a prepaid expense is an expense when pays... Costs that have been paid in advance not yet been used up have. Overall equity balance 60,000 and pays the next quarter rent of 15,000 to cover the 3 months January... Insurance premium that is in the prepaid asset is also established expenses that have paid... For example, sales would be listed before non-operating income, Dividends, income Summary account those.... Considered... ( an asset or a liability an income statement approach represents the of... Cost of obtaining a lease or loan those goods shows a consistent way of these. Annual premises rent of 60,000 and pays the landlord quarterly in advance on which of the following accounts is considered a prepaid expense? day.

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