Equipment D. Prepaid Rent 27. Welcome to Sciemce, where you can ask questions and receive answers from other members of the community. 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). Expenses accounts are equity accounts with a debit balance. The debits and credits are shown in the following journal entry: Since cash was paid out, the asset account Cash is credited and another account needs to be debited. A prepaid expense is an advance payment made with a reasonable, certain anticipation of a future expense. If the company issues monthly 2. At the end of April one third of the prepaid rent expense (1,000) will have been used up as the business has used the premises for that month. 9 years ago. Find Find arrow_forward. A manufacturer would record an expense when it pays its employees for producing its products. A) Cash, Retained Earnings, Wages Payable . D. Earned Revenue. Publisher: OpenStax College. Adjusting entries that should be reversed include those for prepaid or unearned items that d. create an asset or a liability account and were originally entered in a revenue or expense account. In this case one asset (pre paid rent) has been increased by 3,000 and the other (cash) has been reduced by a similar amount. Generally, this is an Other Current Asset account. Expenses are recognized when they are incurred regardless of when paid. Examples of prepaid expenses can be insurance premiums or rent. It lets you deduct a prepaid future expense in the current year if the expense is for a right or benefit that extends no longer than the earlier of: 12 months, or; until the end of the tax year after the tax year in which you made the payment. Which of the following account groups are all considered nominal accounts? Prepaid rent is a balance sheet account, and rent expense is an income statement account. Revenue and expense accounts tend to follow the standard of first listing the items most closely related to the operations of the business. a) cash, fees earned, unearned revenues b) prepaid expenses, unearned revenues, fees earned c) capital account, drawing account, income summary d) drawing account, fees earned, rent expense A business has an annual premises rent of 60,000 and pays the landlord quarterly in advance on the first day of each quarter. … O Prepaid accounts are another name for accounts receivable and are reported as an asset. Answer Save. Individuals and businesses alike can accrue prepaid expenses. *82. Which of the following is an example of a prepaid expense? A. Intangible assets normally include non-physical items and rights. On your 2021 income tax return, you could then deduct the balance of $200 for the part of the prepaid lease that applies to 2021. B) Prepaid Insurance, Property, Plant & Equipment, Fees Earned. What is considered a prepaid expense? Examples of Prepaid Expenses. JKRB. To get a zero balance in an expense account, the entry will show a credit to expenses and a debit to Income Summary. The profit or as deductions from the total revenue. A. Because the advance payment is for a future expense that has not occurred, it is classified as a current asset on the balance sheet of a business. C) Capital Stock, Dividends, Income Summary. Cash: ... Prepaid expenses: Prepaids are any expense the business pays for in advance, such as rent, insurance, office supplies, postage, travel expense, or advances to employees. OpenStax. Each month, the firm would deduct $2,000 from its prepaid expenses on the balance sheet, transferring the amount to a monthly rent expense line on the income statement.By the end of the year, the full $24,000 would show as various expenses on the income statement, and there would be $0 left in the prepaid expense asset account shown in the current asset section of the balance sheet. 3. useful in simplifying the recording of transactions in the next accounting period. It involves two accounts: Prepaid Expense Account and the related Expense Account. A. ISBN: 9781947172685. Principles of Accounting Volume 1. Which of the following accounts will be closed to Income Summary? A common prepaid expense is the six-month insurance premium that is paid in advance for insurance coverage on a company's vehicles. Principles of Accounting Volume 1. Prepaid Rent Journal Entry. Prepaid expenses are future expenses that have been paid in advance. They are also known as unexpired expenses or expenses paid in advance. In small business, there are a number of purchases you may make that are considered prepaid expenses. Expenses are considered ... (an asset) is recorded when the amount is paid. A prepaid expense is an expense which has been paid in advance. The balance in the Prepaid Expenses account should be zero at the end of the coverage period. B. Unearned Revenue. If you use the accrual method of accounting, claim any expense you prepay in the year or years in which you receive the related benefit. After quarter 1, the Prepaid Insurance account would have a value of $9,000, and by the end of the fourth quarter, the Prepaid Insurance account would have a balance of 0. Find Find arrow_forward. D) Rent Revenue, Fees Earned, Miscellaneous Expense. 19th Edition. Real or permanent accounts may be represented by the following accounts: cash; accounts receivable; allowance for doubtful accounts; inventory; prepaid insurance; accounts payable; accrual liabilities (expenses) owner's equity; other balance sheet accounts; Nominal or temporary accounts are closed in the following way: The credit accounts (i.e. If you paid $600 for a three‑year service contract for office equipment in 2019, you can deduct $400 in 2019. Prepaid expenses are shown in the assets section on the balance sheet. You can think of prepaid expenses as costs that have been paid but have not yet been used up or have not yet expired. A prepaid expense is an expense you pay ahead of time. Welcome to Sciemce, where you can ask questions and receive answers from other members of the community. Prepaid expense accounts include: Office Supplies, Prepaid Rent, Prepaid Insurance, and others. 1. C. Dividends. Expense is the six-month Insurance premium that is paid in advance and as! 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