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What the difference between expense and prepaid expense with example?
Expense is any cost that the firm incurs to earn the particular revenue. Most expense are required to be paid except for a few "non-cash expense" such as depreciation. Prepaid, as suggested, are expenses paid in advance but have not yet "used" to generate revenue. It is to be used at a later date. One example of a prepaid expense would be rent i.e. prepaid rent. The owner pays the rent for the next 2 months at $100 per month. Prepaid rent = $200.
How should expenses be recorded?
How to correct misclassification of rent expense? It was recorded as rent expense, should have been recorded as prepaid rent with an effective tax rate of 30%.
Is Rent payable is recorded in accounting year?
First let me say there is no account referred to as "Rent Payable". Rent is an operating expense for a business, you have two main accounts that deal with rent. 1 is Prepaid Rent, the other is Rent Expense. Prepaid Rent is used if the company pays their rent in advance. Prepaid Rent is an Asset. For example a company pays 6 months rent in advance, the journal entry isPrepaid Rent (debit) $$$Cash (credit) $$$Each month as the rent is "used up" an adjusting entry must be made. Since the cash has already been paid the entries move the amount needed of that month from one account to another. In this case we want to move it from the asset account Prepaid Rent to the Expense account Rent Expense the entry is;Rent Expense (debit) $$$Prepaid Rent (credit) $$$As you notice since prepaid rent is an asset account it has a debit balance, therefore to "remove" the amount of rent used we must credit that amount.If the company pays their rent monthly on a cash basis the journal entry is simple and straight forward.Rent Expense (debit) $$$Cash (credit) $$$You will not see an account called "Rent Payable" as a payable account is a liability account and expense are not classified as a liability but an operating expense.
How do you journal entry prepay account?
Dr: Prepayment to Suppliers (In Case of Expense, then "Prepaid expense" account will be debited e:g Prepaid Rent) Cr: Bank/Cash
What are the accounts affected for rent paid in advanced?
Payer: debit prepaid rent and credit cash. Remember the accrual basis of accounting. After using rent for one month. Then the payer debits rent expense and credits prepaid rent.
What the difference between expense and prepaid expense with example?
Expense is any cost that the firm incurs to earn the particular revenue. Most expense are required to be paid except for a few "non-cash expense" such as depreciation. Prepaid, as suggested, are expenses paid in advance but have not yet "used" to generate revenue. It is to be used at a later date. One example of a prepaid expense would be rent i.e. prepaid rent. The owner pays the rent for the next 2 months at $100 per month. Prepaid rent = $200.
What the difference between prepaid and accrued expense?
A prepaid expense is an expense you pay before you have incurred an obligation to pay it. Paying three months rent in advance is an example. Prepaid expenses are viewed as an asset on the balance sheet which is reduced as the expense is incurred. For example, every month in which rent falls due would be a reduction of your prepaid rent asset and a recognition of an expense equal to the amount of the reduction. Accrued expenses, on the other hand, are essentially the opposite. For example, assume you didn't prepay your rent. As the rent expense is incurred, a liability is created. After you actually make your payment, the liability is reduced by the amount of your payment.
Is prepaid rent is what type of asset?
Prepaid Rent is a Current-Asset account. Since it deals with "prepaid" it will expire on a regular basis and is not a "fixed" asset. Each month (or whatever terms the rent may be paid) the amount is removed from Prepaid-Rent and placed in Rent Expense.
How should expenses be recorded?
How to correct misclassification of rent expense? It was recorded as rent expense, should have been recorded as prepaid rent with an effective tax rate of 30%.
Rent expense cost of sales?
Rent expense is considered an overhead cost, not a cost of sales since it does not directly relate to the merchandise you are selling. Any prepaid rent (such as at the beginning of the month) should receive a journal entry debit to an account called prepaid rent, and at the end of the month should be credited to rent expense. Hope this helps.
Is Rent payable is recorded in accounting year?
First let me say there is no account referred to as "Rent Payable". Rent is an operating expense for a business, you have two main accounts that deal with rent. 1 is Prepaid Rent, the other is Rent Expense. Prepaid Rent is used if the company pays their rent in advance. Prepaid Rent is an Asset. For example a company pays 6 months rent in advance, the journal entry isPrepaid Rent (debit) $$$Cash (credit) $$$Each month as the rent is "used up" an adjusting entry must be made. Since the cash has already been paid the entries move the amount needed of that month from one account to another. In this case we want to move it from the asset account Prepaid Rent to the Expense account Rent Expense the entry is;Rent Expense (debit) $$$Prepaid Rent (credit) $$$As you notice since prepaid rent is an asset account it has a debit balance, therefore to "remove" the amount of rent used we must credit that amount.If the company pays their rent monthly on a cash basis the journal entry is simple and straight forward.Rent Expense (debit) $$$Cash (credit) $$$You will not see an account called "Rent Payable" as a payable account is a liability account and expense are not classified as a liability but an operating expense.
How do you journal entry prepay account?
Dr: Prepayment to Suppliers (In Case of Expense, then "Prepaid expense" account will be debited e:g Prepaid Rent) Cr: Bank/Cash
What are the accounts affected for rent paid in advanced?
Payer: debit prepaid rent and credit cash. Remember the accrual basis of accounting. After using rent for one month. Then the payer debits rent expense and credits prepaid rent.
What is the difference between out standing expense and prepaid expenses?
Outstanding Expenses are expenses which are due at a specific point of time for example if the actual date to pay the rent is 1st july and we don't pay the rent till august end, then it is called the outstanding Expenses (outstanding rent) prepaid Expenses are expenses which are paid in advance for example if we paid the premium of Insurance in advance i.e before due date, then it calls the prepaid expenses.
What is a deferred rent payable?
Deferred rent payable is the sum of the difference between a monthly rent payment and the monthly rent expense of an operating lease that contains escalated payments in future periods. The rent expense is the sum of all rent payments over the term of the lease divided by the number of periods contained in the lease otherwise known as straight-line amortization. This rent expense amount can/may differ from the monthly rent payments. The difference is deferred rent payable.
What is deferred rent payable?
Deferred rent payable is the sum of the difference between a monthly rent payment and the monthly rent expense of an operating lease that contains escalated payments in future periods. The rent expense is the sum of all rent payments over the term of the lease divided by the number of periods contained in the lease otherwise known as straight-line amortization. This rent expense amount can/may differ from the monthly rent payments. The difference is deferred rent payable.
What accounts will normally maintain a credit balance prepaid taxes interest income rent expense equipment?
Prepaid taxes and equipment are asset accounts, so would normally have a debit balance. Rent expense is an expense account, so would normally have a debit balance. Liability, equity, and income accounts normally have credit balances.
