Prepaid Expenses Vs Accrued Expenses- Major Differences

PREPAID EXPENSES VS ACCRUED EXPENSESMAJOR DIFFERENCES

Whether you are a finance student or have just fostered an interest to deal with your records in the business, it becomes vital to comprehend the prepaid expenses and accrued expenses are the specialized languagesthat characterize the organization's Balance sheet.

Prepaid These expenses are expenses brought about as a result of Expenses instalments that have been made in advance. However, expenses are typically recorded as a liability in the balance sheet yet these expenses are a slight deviation from the hypothesis in light of the fact that the advantages can be brought about later on.

The best example of prepaid expense is an insurance premium. However, insurance instalment is an expense yet anyway the main reason for undertaking an insurance coverage is to receive future benefits from this expense.

Accrued The accrued expense is the exact opposite of prepaid Expenses expense. Where prepaid expenses are included in the current asset, accrued expenses are included in the current liability. Accrued expenses are expenses that have been incurred but the payment has not been made yet.

An example of accrued expense includes: Goods received but no invoice has been delivered for payment. To record this transaction, the accrued expense is recorded as a credit in the liability account and the office supplies expense is recorded as a debit in the Balance sheet.

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