Prepaid Payable

Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future.

A prepaid expense is an asset on the balance sheet. The number of prepaid expenses that will be used up within one year is reported on a company’s balance sheet as a current asset. According to generally accepted accounting principles (GAAP), expenses should be recorded in the same accounting period as the benefit generated from the related asset.

Example

ABC Ltd. purchases insurance for the warehouse. It was ₹2,000 per month. The company pays ₹24,000 in cash upfront for a 12-month insurance policy for the warehouse. Each month an adjusting journal entry will be passed, adjusting the amount of insurance used from the prepaid insurance.

Journal Entry-

Prepaid Expenses in Balance Sheet-

Prepaid expenses are shown in the balance sheet under the current assets heading as it’s a short-term asset and to be consumed within one accounting year.

Balance Sheet (for the year ending…)