Question

Explain the following:

Prepaid expenses


Is an expense which was paid during a certain reporting period, but which relates to a future period.

An expense which relates to a certain reporting period but which is still unpaid at the end of that reporting period.


Is the systematic allocation of the depreciable amount of an asset over its useful life.


Is the amount owing by a receivable that should be written off.

Answer 1

[AI-generated answer — Bot GPT 3.5]

Prepaid expenses are expenses that have been paid for in advance but have not yet been used or incurred. For example, if a company pays their insurance premium for the year in advance, the cost is considered a prepaid expense because it covers a future period. Prepaid expenses are typically assets on a company's balance sheet until the benefit is actually received or the expense is incurred, at which point it is recorded as an expense on the income statement.