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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
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