Expense must be recorded in the accounting period in which it is incurred. A prepaid expense is an expenditure paid for in one accounting period, but for which the underlying asset will not be consumed until a future period. It is not an expense. Prepaid expense is expense paid in advance but which has not yet been incurred. Many of the accounts payable that you record are amounts owed for expenses. At the end of the calendar (fiscal) year – December 31, 20X0 – the company will have $8,000 (4 months x $2,000 monthly expense) left as unused prepaid insurance expense. You paid for the space, but you have not used it yet. Following accounting entry is required to account for the prepaid expense: Debit- Prepaid Expense (Asset) & Credit- Cash/Bank

These are both asset accounts and do not increase or decrease a company’s balance sheet.
The initial journal entry for prepaid rent is a debit to prepaid rent and a credit to cash.

You prepay $9,000 of rent for six months. The balance in Accrued Liabilities will be reported in the current liability section of the … Recall that prepaid expenses are considered an asset because they provide future economic benefits to the company. by Anonymous (Unknown) Q: If the amount has been debited into accrued expenses, do we need to credit it after making the payment (so that the balance would be zero in accrued expenses)?. This adjusting entry will credit Accrued Liabilities and will debit the appropriate expense or other account for the amounts that were incurred but are not yet included in Accounts Payable. Accrued Expenses Journal Entry: Debit or Credit? When the asset is eventually consumed, it is charged to expense.If consumed over multiple periods, there may be a series of corresponding charges to expense. Journal Entry 5 shows the debit going to an office supplies expense account. First, debit the Prepaid Expense account to show an increase in assets.

Definition of Prepaid Expenses. A: Accrued Expenses is a liability account. However, not every accounts payable transaction stems from incurring some expense.
Also, credit the Cash account to show the loss of cash. Not every debit is for an expense.

So, you need to record the amount as a prepaid expense.