Show these transactions in the rental expense account.
Prepaid expenditure increases profit on the statement of profit or loss and also
creates a current asset to be included on the statement of financial position.
For example, if we were to include a prepayment of $1,000 in our financial
statements for insurance, the accounting entries would be:
Dr Prepayments $1,000
Cr Insurance expense $1,000
The prepayments side would increase our current assets by the $1,000. The
insurance expense would decrease by the $1,000, and hence increase our
overall profits.
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