Adjusting Entries for Prepaid Expenses | Introductory Accounting

Hey everyone! In this video, we're unpacking how to handle prepaid or deferred expenses.

Prepaid expenses are essentially payments we make in advance for services or goods we'll use over time. They're like buying a coffee subscription; you pay upfront for coffee you'll drink over the next several months. In accounting, we treat these prepayments as assets because they represent future benefits. But here's the twist – we don't record an expense right away. Instead, we spread it out over the benefit period.

In essence, recording prepaid expenses and depreciation is all about timing. We initially recognize these payments as assets, then methodically record expenses as we consume the benefits or as the asset depreciates. This way, our financial statements accurately reflect our business's financial position at any given moment.

I hope the examples in this video help clarify how prepaid expenses work in the real world of accounting. If you've got questions, thoughts, or examples of your own, drop them in the comments. Don't forget to like, share, and subscribe for more accounting videos!


Jonathan M. Wild
www.wildaccounting.com

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