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Prepaid Expenses
All those expenses which are due next year but paid for in advance during the current year are termed as Prepaid Expenses.
Adjustment Entries
| Prepaid Expense Account | Dr. | |
| Expense Account | ||
| (For expense paid in advance) | ||
Accounting Treatment
The concerned expense will be deducted by the prepaid amount in the Trading Account or Profit & Loss account.
Prepaid expenses are assets for the business thus it will appear under the Current Assets in the Balance Sheet.
Note: If the Prepaid expense is given inside the Trial Balance, then the prepaid expense will only appear in the Current Asset of the Balance Sheet.
