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Prepaid Expenses

Prepaid expenses refer to expenses of the next period paid in the current year. In other words, those expenses which are paid during the current accounting period, but the benefit of which will accrue in the subsequent accounting period or periods are called prepaid expenses. Insurance premium paid is one of the examples of prepaid expenses

Impact on financial statements

  • In Profit and Loss Account, prepaid expense will be deducted from the respective expense paid, as it is not related to the current year
  • In Balance Sheet, prepaid expense will appear as an asset

The following journal entry is passed:




Debit (₹)

Credit (₹)


Prepaid expenses A/c         Dr.




   To Respective expenses A/c


Note: The above entry will be reversed in the subsequent period

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