Prepayments Flashcards
1
Q
What is a prepayment?
A
It is an expense that has been paid in advance
2
Q
Is a prepayment an asset or liability?
A
A current asset
3
Q
What is the double entry of a prepayment?
A
Debit ‘prepayment’
Credit, the expense on the income statement (e.g. ‘rent’)
4
Q
What will happen on the income statement?
A
The expense on the income statement will decrease
5
Q
What will happen on the statement of financial position?
A
There will be an additional current asset
6
Q
How do you calculate a prepayment?
A
Monthly amount x number of months’ prepayment
7
Q
What do you do after calculating the prepayment?
A
Subtract it from the expense on the trial balance
