The journal entry for prepaid expenses involves two accounts: prepaid expense a/c and expense a/c. Learn how to account for them and create a Prepaid Expenses Journal Entry!

Prepaid expenses are payments made in advance for goods or services to be received in the future. These are considered assets until the benefit of the payment is realized over time, at which point they are expensed. Below are some examples of journal entries for prepaid expenses:

Learn what prepaid expenses are, how to classify them as an asset or expense on your financial statements, and examples of prepaid expenses. Get ideas here.

What is The Journal Entry for Prepaid Expenses? The journal entry for prepaid expenses first records the payment as an asset by debiting "Prepaid Expenses" and crediting "Cash." As the benefit is used, an adjusting entry debits the expense account and credits “Prepaid Expenses.” The accounting side of prepaid expenses involves two main steps:

Prepaid expenses may need to be adjusted at the end of the accounting period. The adjusting entry for prepaid expense depends upon the journal entry made when it was initially recorded. There are two ways of recording prepayments: (1) the asset method, and (2) the expense method.