what is the order of prepayment entry circle of prepayment entry, prepayment schedule, invoice, reconciliation
Answers
Step-by-step explanation:
Example
ABC LTD pays advance rent to its landowner of $10,000 on 31st December 2010 in respect of office rent for the following year. ABC LTD has an accounting year end of 31st December 2010.
ABC LTD will recognize an asset of $10,000 in the financial statements of year 2010 in respect of the prepaid expense to recognize its right to use office space in the following year. Following accounting entry will be recorded in the books of ABC LTD in the year 2010:
Debit
Prepaid Rent
$10,000
Credit
Cash/Bank
$10,000
The prepaid expense will be recognized as expense in the next accounting period to which the rental expense relates. Following accounting entry will be recorded in the year 2011:
Debit
Rent Expense (Income Statement)
$10,000
Credit
Prepaid Rent
$10,000
Quiz

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Question
XYZ LTD has a year end of 31st December 2011. Which of the following transactions should lead to recognition of prepaid expense in the financial statements of XYZ LTD?
XYZ LTD paid rent in advance for one year on 1st November 2011.
XYZ LTD entered into an insurance contract for 12 months starting from 1st January 2012. Payment was scheduled to be made in advance by no later than 25th December 2011. However, the payment was actually made on 1st January 2012.
XYZ LTD paid DEF LTD, an advertising agency, on 1st December 2011 for advertising services rendered in December 2011.