Accruals and prepayments
178
KAPLAN PUBLISHING
4 Prepaid
expenditure
A prepayment arises where some of the following year’s expenses have
been paid in the current year.
In this case, it is necessary to remove that part of the expense which is not
relevant to this year and create a corresponding statement of financial position
asset (called a prepayment):
Dr Prepayment
$X
Cr Expense account
$X
A prepayment will therefore increase profit in the statement of profit or loss.
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