Peerless Prepaid Income On Balance Sheet

Prepaid Income Tax Explanation Prepaid income tax is.

Prepaid income on balance sheet. Each month the firm would deduct 2000 from its prepaid expenses on the balance sheet transferring the amount to a monthly rent expense line on the income statement. Income is never paid let alone prepaid but only received. While preparing the Trading and Profit and Loss Ac we need to deduct the amount of prepaid expense from that particular expense.

Accrued Income is the income that has been earned but not yet received. Prepaid rent is a balance sheet account and rent expense is an income statement account. A prepaid expense is a type of asset on the balance sheet that results from a business making advanced payments for goods or services to be received in the future.

Therefore prepaid income must be not be shown as income in the accounting period in which it is received but instead it must be presented as such in the subsequent accounting periods in which the services or obligations in respect of the prepaid income have been. And its a bit of a contradiction in terms. Prepaid income is funds received from a customer prior to the provision of goods or services.

A prepaid expense is a type of asset on the balance sheet that results from a business making advanced payments for goods or services to be received in the future. Prepaid Income is found on the Balance Sheet of a company as a liability as it is something which is owed either with its own section or under Other Current Liabilities. The adjusting journal entry for a prepaid expense however does affect both a companys income statement and balance sheet.

Prepaid Expenses Accrued Income and Income Received in Advance Accrued Income. Income must be recorded in the accounting period in which it is earned. The expense would show up on the income statement while the decrease in prepaid rent of 10000 would reduce the assets on the balance sheet.

Once the goods or services have been delivered the liability is cancelled and the funds are instead recorded as revenue. Following all previous examples and as many from the internet as I can find I understand that Prepaid membership fees show on the Balance sheet as a credit as they are a liability hence opening Prepaid income is a Credit and Opening accrued income is consequently a Debit. In a finance and investment banking interview candidates will almost certainly be asked questions that test their understanding of the relationship between the balance sheet income statement and cash flow statement.