![]() ![]() ![]() Are prepaid expenses an asset full#Pooley Electric Company purchased office supplies costing 4,000 and debited office supplies for the full amount. Thus, out of the $1,500, $900 worth of supplies have been used and $600 remain unused. Answer (1 of 13): In order to understand, let's first go through with the definition of asset: An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. An asset/expense relationship exists with prepaid expense adjusting entries. A capital asset is an item of tangible property that is not. Suppose at the end of the month, 60% of the supplies have been used. A prepaid expense is a future operating expense that has been paid in advance. Take note that the amount has not yet been incurred, thus it is proper to record it as an asset. In one of our previous illustrations (if you have been following our comprehensive illustration for Gray Electronic Repair Services), we made this entry to record the purchase of service supplies: Dec 7 Service Supplies 1,500.00 Cash 1,500.00 At this time, your overall financial record total is not. Using the above example, you would add 6,000 in assets to your prepaid insurance account and credit 6,000 from your cash account. Prepaid expense accounts include: Office Supplies, Prepaid Rent, Prepaid Insurance, and others. When first recording the prepaid expense entry, you should debit the asset account for the amount paid and subtract the same amount from your cash account. Under the asset method, a prepaid expense account (an asset) is recorded when the amount is paid. There are two ways of recording prepayments: (1) the asset method, and (2) the expense method. The prepaid insurance account must report the true amount that is prepaid but yet not expired as of the day of the balance sheet. ![]() Other current assets are cash and equivalents, accounts receivable, notes receivable, and inventory. Prepaid expenses are the money set aside for goods or services before you receive delivery. The adjusting entry for prepaid expense depends upon the journal entry made when it was initially recorded. Are prepaid expenses accounts receivable 'Current assets' is a section on a companys balance sheet that often includes prepaid expenses. Prepaid expenses may need to be adjusted at the end of the accounting period. ![]()
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