The tubs have ultimate responsibility for accrued expense, prepaid expense and deposits paid balances. Payments for goods and services must adhere to Accounts Payable policies and guidelines. A prepaid expense is an amount which has been paid in advance of receiving future economic benefits anticipated by the payment. In each month of the 12-month policy, the company would recognize an expense of $1,000 and draw down the prepaid asset by this same amount. Other examples of prepaid expenses you might incur include legal retainer fees, healthcare coverage, property taxes, and maintenance services. A common example of a prepaid expense is an insurance policy. PDF; Size: 54 KB Download. The recording of the payment is split between a current year and a prepaid expense, provided the prepaid portion is the stated minimum threshold of $ 5,000. Prepaid expense – the result of paying for a good, service or contract before the yearend date and the University receiving the good, service or contract after the yearend date. Prepaid expenses should use a prepaid account number in the appropriate line of business and noted in the comment area what expense account should be charged when the expense is incurred. accordcorp.org. 3. Please note in some instances an expense may not occur within the confines of one fiscal year. Process for Prepaid Expenses in Accounting When there is a payment that represents a prepayment of an expense, a prepaid account, such as Prepaid Insurance, is debited and the cash account is credited. The short-term portion will be for the 12 months after December 31, 20X0 and equal $12,000 (because this balance will be amortized within a year after the balance sheet date). As there are situations where the Journal Entry for Prepaid expense can be passed, it is not possible to provide all the types of situations. Prepaid – a payment for services in advance; an expense which arises whenever cash is disbursed and a portion of the associated benefit of the disbursement is for a future period. Another example is a lump sum payment for rent; if a company pays for a year's worth of rent in advance, it is recorded as a deferred charge. The recording of the payment is split between a current year and a prepaid expense, provided the prepaid portion is the stated minimum threshold of $5,000. Prepaid Expense. This conflicts with the GAAP treatment which states that prepaid Financial Accounting and Reporting (FAR), within the Office of the Controller, is responsible for maintaining this policy and for answering questions regarding the policy. Thank you. They are an advance payment for the business and therefore treated as an asset.The accounting rule applied is to debit the increase in assets” and “credit the decrease in expense” (modern rules of accounting).