How are Prepaid Expenses are Listed on the Balance Sheet The balance in Prepaid Expense is now zero. Here is the adjusting entry in the next month to record the receipt of the services: Marketing Expense Here is the original journal entry to record the prepayment of marketing costs: Prepaid ExpenseĪ journal entry to record prepayment of marketing expense. When the contract is completed the next month, the amount is moved out of Prepaid Expense and into Marketing Expense using an adjusting journal entry. If a company is required to pay in advance for marketing consulting on a contract that will be completed in the next month, Prepaid Expense is used to record the prepayment. An example of a Prepaid Expense is prepaid marketing. Prepaid Expense account is used to record amounts that are paid for in one accounting period and received in another accounting period. It is listed in the Current Asset section on the Balance Sheet. It represents cash paid for services or goods in the current month that will be received in a future month. This could include goods paid for in advance of delivery or services paid for in advance of the service being delivered. Prepaid Expenses is an account used to track the payment in advance of any substantial prepayments for goods and services. This adjusting journal entry would be done each month for twelve months until the prepaid premium is “used up” and the balance is zero. The journal entry for Prepaid Insurance is: Prepaid InsuranceĪ journal entry to record the prepayment of twelve months insurance.Īs the Prepaid Insurance is “used up”, an adjusting journal entry is used to move the amount out of Prepaid Insurance and into Insurance Expense: Insurance ExpenseĪn adjusting journal entry to record one month’s insurance expense. It represents cash paid for services that have not yet been received. An example of this is a company paying a year of insurance in advance.

Prepaid Insurance represents insurance premiums paid to insurers in advance. The final adjusting journal entry is done in the third month, bringing the balance in Prepaid Rent to zero. When the second month’s rent is due, an adjusting journal entry is done to move one month’s rent from Prepaid Rent to Rent Expense: Rent ExpenseĪfter the second month’s journal entry is completed, the balance in Prepaid Rent is now $3,600 – $2,400 = $1,200. When the first month’s rent is due, an adjusting journal entry is done to move one month’s rent from Prepaid Rent to Rent Expense: Rent ExpenseĪn adjusting journal entry to record Rent Expense.Īfter the first month’s journal entry is completed, the balance in Prepaid Rent is now $3,600 – $1,200 = $2,400. The original journal entry would be: Prepaid RentĪ journal entry to record the prepayment of three month’s rent. If a business prepaid three months of rent, as each month passes, one month’s rent is moved from Prepaid Rent into Rent Expense. When the Prepaid Rent is “used up”, an adjusting journal entry is used to move the amount out of Prepaid Rent and into Rent Expense: Rent Expense The journal entry for Prepaid Rent is: Prepaid RentĪ journal entry to record the payment of one month’s rent and the prepayment of one month’s rent.

Prepaid expenses in accounting