![]() ![]() Accrued expenses are costs that a company has incurred but not yet paid by the end of the accounting period. A prepaid expense means a company has made an advance payment for goods or services, which it will use at a future date. We’ve explained some easy-to-understand prepaid expenses journal entry meaning and prepaid expenses examples in this article to help you know everything about it. The key difference is that prepaid expenses are reported as a current asset on the balance sheet and accrued expenses as current liabilities. The fact that you know youll pay a bill in 30 days isnt enough to accrue it if no benefit has been received. If you havent received any benefit you havent incurred a liability and you havent deferred an expense. The Hershey Company – Extract from the balance sheet Prepaid Expenses Versus Accrued Expenses There’s no prepaid or liability related to future services. When the company expensed March’s rent at the beginning of that month, it cleared the prepaid expense account.īelow is an extract and breakdown from the Hershey Company Balance Sheet at December 31, 2019.After the company expensed February’s rent at the beginning of the month, the prepaid expense account in the balance sheet decreased to $1,500.The company recognizes the first expense in February since that was the month of consumption, not January.The effect on the balance sheet is as follows: Accrued expenses are a current liability and represent costs a company has incurred but not yet paid by the end of the accounting periodĪ company has paid its monthly rental of $1,500 at the end of January in advance for the following two months.Prepaid expenses are reported on the balance sheet and expensed through the income statement via retained earnings as the asset is consumed.As they are expected to be used within 12 months they are categorized as a current asset. ![]() Prepaid expenses include rent and insurance contracts, and represent goods or services already paid for where the company expects to use the benefit within 12 months. ![]()
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