Why are prepayments assets?

topcat

Just recapping level 3 bits and can not remember why prepayments are assets on the sofp? Not finding any reference to why in the book I have either

Any help appreciated

Nps

Because you've paid for something that you have not yet received, so it is due to you. Rather like trade receivables. If you hadn't paid for it, you'd have the equivalent cash in the bank as the asset instead.

The opposite being accruals which you've already used but have not paid for so is a liability, like a trade payable.

topcat

Nps wrote: »

Because you've paid for something that you have not yet received, so it is due to you. Rather like trade receivables. If you hadn't paid for it, you'd have the equivalent cash in the bank as the asset instead.

The opposite being accruals which you've already used but have not paid for so is a liability, like a trade payable.

Brilliant thank you very much you have cleared that up in seconds!

Great to see you still on here to :-) did you pass your level 4?(I'm sure you wwas studying for it could have bad memory though)

Nps

I finished AAT last year, I'm on ACCA now, just passed my 5th, 6th and 7th exams so half way there!