Major Difference Between Prepaid Expenses & Accrued Expenses

Prepaid Expenses vs Accrued Expenses

What it is?

Whether you are a finance student or have simply developed an interest to manage your accounts in business, it becomes crucial to understand the prepaid expenses and accrued expenses are the technical jargons that define the company’s Balance sheet.

[All kinds of business expenses can be managed well with the Expense Management tool] It becomes crucial to realize the difference between these expenses on the basis of: The timing of the expenses incurred The financial statements of a company

Prepaid Expenses:

These expenses are expenses incurred because of payments that have been made in advance.

Though expenses are usually recorded as a liability in the balance sheet but these expenses are a slight deviation from the theory because the privileges can be incurred in the future.

An example of prepaid expense is an insurance premium. Though insurance payment is an expense but however the prime reason for undertaking insurance coverage is to receive future benefits from this expense.

Accured Expenses:

The accrued expense is the exact opposite of prepaid 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.

Using an Expensetrackingsoftware like Invoicera is the key to managing all kinds of business expenses well. The tool is helpful for recording expenses and when they occur generating detailed expense reports for financial analysis. Also, check a tool that helps in assigning expenses to staff members within the company analyzing the same in the long run. and Free Sign up now!

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