Prepayments

System

When dealing with prepayments in the T accounts, once you have balancedf the account and your are left with an expense for the next accounting period which is a debit entry, how do you know this is now prepaid and not a new expense?

System

Prepayments

The balance in the T account will always be the cost for the period after you have reviewed the accounts. Because when you run the first TB all the balances will be before any adjustments.<BR>When you review thats when you look at each item in the TB and make the necessary accounting adjustment. <BR>You will then take the cost in the TB, CR the amount you want to prepay and DR the prepaid expenses in the BS. <BR>The remianing DR amount will be the cost that you want to show for that period. <BR>The next period the CR amount will now show as DR, you will now repeat the same procedure and show only the amount you want to recognise for the period. This will go on until you have recognised all the cost. <BR><BR>An e.g. Say A co. rec'd an inv for £1200 for Light and Heat for the period 1Jan to 31Dec. <BR>Your TB at 31Jan will show a cost of £1200 but you only want to show a cost of £100, hence you will prepay £1100 and in Feb you prepay £1000, in Mar £900 etc until Dec when the final £100 will be recognised. <BR><BR>I hope this answer you question but you email me at tsaccoh@msn.com and I will reply to any queries you might have.<BR><BR>regards<BR>teddy