Prepaid expenses, outstanding expenses, advance income, accrued income

What Are Prepaid Expenses?

Prepaid expenses are expenses paid in advance before they are incurred. They are paid in the current accounting period but their benefit accrues in the subsequent accounting period or periods.
Prepaid expenses are shown on the balance sheet as a current asset and then recognized as expenses when they are actually incurred in the next accounting period or periods.
Common examples of prepaid expenses include insurance premium paid in advance, rent paid in advance, etc.
Prepaid expenses are also called as unexpired expenses.

Why Are Prepaid Expenses Considered An
Asset?

Asset is an item of economic value that is expected to provide benefit to the company in future. Prepaid expenses are considered as an asset because the goods or services i.e. the benefit related to them are yet to be received which the company expects to receive in future without paying any money as the money has already been paid.

What Are Outstanding Expenses?

Outstanding expenses are expenses which are incurred but not yet paid. They are paid in the subsequent accounting period or periods but their benefit accrues in the current accounting period.
Outstanding expenses are shown in the balance sheet as a current liability and then recognized as expenses when they are paid in the next accounting period or periods.
Common examples of outstanding expenses include outstanding salary, outstanding rent, etc.

What Is Advance Income?

Advance income is the income which is received in advance before it is earned. It is received in the current accounting period but it’s benefit is provided in the subsequent accounting period or periods.
Advance income is shown on the balance sheet as a current liability and then recognized as income when it is actually earned in the next accounting period or periods.
Advance income is also called as prepaid income or unearned income or income received in advance.

Why Is Income Received In advance Considered A liability?

Income received in advance is considered as a liability because the goods or services i.e. benefit related to it is yet to be provided which the company is obligated to provide in future without receiving any money as the money has already been received.

What Is Accrued Income?

Accrued income is the income which has been earned but not yet received. It is received in the subsequent accounting period or periods but it’s benefit is provided in the current accounting period.
Accrued income is shown on the balance sheet as a current asset and then recognized as income when it is actually received in the next accounting period or periods.
Accrued income is also called as outstanding income.

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