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19 January, 2016 - 12:21

Prepayments, also called deferrals, result from cash payment proceeds an expense or revenue recognition. The most common example of a prepaid expense is unearned revenue.

Often, businesses pay for services from which they have not yet benefited e.g. rent is often paid in advance.

The double entry for a prepayment is:

Figure 2.3 Journal  - Page 1 

Later when the rent is actually due the entry is:

Figure 2.4 Journal  - Page 1