Q.What is Prepaid Expenses ?

Prepaid expenses = expenses paid in advance whose benefit falls in the next year; treated as an asset.

Meaning

A prepaid expense (also called an unexpired expense) is an expense that has been paid in the current year, but the service/benefit for it will be received in the following accounting period. Only the portion relating to the current year is a true expense; the balance is carried forward.

Treatment (double effect, matching concept)

• Profit and Loss account: deduct the prepaid amount from the relevant expense (so only the current year's share is charged).
• Balance Sheet: show the prepaid amount on the assets side (it is a benefit receivable in future). …