Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 33 - No. 23)
If a business pays in advance for an expense that will be used in the following accounting year, how should the expense be treated in the current year?
It should be fully expensed in the current year.
It should be treated as a prepayment or prepaid expense.
It should be ignored until the next accounting year.
It should be split equally between the two years.
Explanation
Prepaid expenses are initially recorded as an asset and expensed over the period benefited.
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