![]() ![]() Record the amount of the expenditure in the prepaid expenses reconciliation spreadsheet.Īt the end of the accounting period, establish the number of periods over which the item will be amortized, and enter this information in the reconciliation spreadsheet. If not, charge the invoiced amount to expense in the current period. If the item meets the company's criteria, charge it to the prepaid expenses account. Upon the initial recordation of a supplier invoice in the accounting system, verify that the item meets the company's criteria for a prepaid expense (asset). The basic accounting for a prepaid expense follows these steps: If a prepaid expense were likely to not be consumed within the next year, it would instead be classified on the balance sheet as a long-term asset (a rarity). The reason for the current asset designation is that most prepaid assets are consumed within a few months of their initial recordation. Another item commonly found in the prepaid expenses account is prepaid rent.Ī prepaid expense is carried on the balance sheet of an organization as a current asset until it is consumed. Examples of Prepaid ExpensesĪn example of a prepaid expense is insurance, which is frequently paid in advance for multiple future periods an entity initially records this expenditure as a prepaid expense (an asset), and then charges it to expense over the usage period. The prepaids concept is not used under the cash basis of accounting, which is commonly used by smaller organizations. If a business were to not use the prepaids concept, their assets would be somewhat understated in the short term, as would their profits. If consumed over multiple periods, there may be a series of corresponding charges to expense.Įxpenditures are recorded as prepaid expenses in order to more closely match their recognition as expenses with the periods in which they are actually consumed. ![]() When the asset is eventually consumed, it is charged to expense. The costs incurred in planning each month run to several thousand dollars.A prepaid expense is an expenditure paid for in one accounting period, but for which the underlying asset will not be consumed until a future period. From Longman Business Dictionary incur in‧cur / ɪnˈkɜː-ˈkɜːr / verb ( incurred, incurring ) FINANCE if you incur a cost, a debt, or a fine, you do something that means that you lose money or have to pay money The foundry has been operating at less than 50% capacity and has incurred significant operating losses. An individual farmer can produce good farm-saved seed only by incurring costs very close to the price of certified seed.Abbey National investors were forced to incur costs selling their shares.Mr Davila incurred losses of more than $ 170 million in his 1993 copper trading.During the quarter, Verio began to incur costs associated with the previously announced expansion of its hosting operations.The alternative, allowing individuals or individual committees to operate without supervision, would also incur costs.They also have incurred some important injuries, including the loss of first-string quarterback Steve Young for several games. ![]() So the maintenance costs are incurred on the vehicle itself, and not the track.Because of this possibility, shareholders will have to incur monitoring costs or agency costs to ensure that managers behave properly.In addition, the legal expenses incurred in the dispute between the partners were incurred to protect and preserve the partnership's assets.We have calculated a $ 3 per household recommendation to offset these additional costs incurred during the holidays.If you incur bank charges, some banks operate a slightly cheaper tariff for direct debits because they are more easily handled.The force of that competition is indicated by the costs that firms incur and the fees that they charge clients.We have increased housing support grant so that all local authorities that incur a deficit in running a hostel will qualify for grant.The auto manufacturer incurred a $843.6 million loss in 1990.→ See Verb table Examples from the Corpus incur the heavy losses incurred by airlines since September 11th 2 GET if you incur something unpleasant, it happens to you because of something you have done incur somebody’s displeasure/wrath/disapproval etc She wondered what she’d done to incur his displeasure this time. ○○ verb ( incurred, incurring ) formal 1 SPEND MONEY if you incur a cost, debt, or a fine, you have to pay money because of something you have done incur expenses/costs/losses/debts etc If the council loses the appeal, it will incur all the legal costs.From Longman Dictionary of Contemporary English incur in‧cur / ɪnˈkɜː $ -ˈkɜːr / ![]()
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