Financial Accounting › Accruals & Prepayments

How do you record a prepayment?

Intermediate

Answer

Remove the portion not yet used from the expense and carry it as a current asset (prepaid expense).
Paid insurance 1,200 for a year, 3 months used:
Dr Prepaid Expense 900  Cr Insurance Expense 900
Real-world example Spreading an annual insurance payment across the months it covers.