Prepaid expense意思
"Prepaid expense" is an accounting term that refers to an advance payment for goods or services that are expected to be received in the future. In other words, it is money that has been paid in advance for something that has not yet been received or consumed.
For example, if a company pays its rent for the entire year upfront in December, but the company will occupy the space for the entire year, including the months of January through November, the portion of the rent that relates to future occupancy (January through November) is considered a prepaid expense.
Prepaid expenses are recorded as assets on the balance sheet because they represent the future economic benefit that the company will receive. As the company actually uses up or consumes the goods or services that have been paid for in advance, the expense is recognized on the income statement.
The process of expensing prepaid items is called "accrual" and is done over the period in which the benefit is actually received. This is in accordance with the accrual basis of accounting, which recognizes revenues and expenses when they are earned or incurred, rather than when cash is exchanged.
Prepaid expenses are a common part of the normal business operations and can include items such as:
- Prepaid Rent
- Prepaid Insurance
- Prepaid Supplies
- Prepaid Utilities
- Prepaid Subscriptions
When a company pays for these items in advance, the amount paid is initially recorded as a prepaid asset on the balance sheet. As the company uses or consumes the benefit, the asset account is decreased and the corresponding expense is recognized on the income statement.
For instance, if a company pays $12,000 for a one-year insurance policy, the entire $12,000 is initially recorded as a prepaid expense. As the policy benefits the company for the year, the expense is recognized on a monthly basis, with $1,000 being expensed each month ($12,000 / 12 months).
In summary, prepaid expenses are a way for companies to recognize the cost of goods or services that have been paid for in advance over the period in which they are actually used or consumed.