Prepaid Expenses
Definition
Amounts paid in advance for goods or services the business has not yet consumed, carried as a current asset and released to expense as the benefit is used. Annual insurance premiums, software licences and advance rent are the usual cases.
Related Terms in Core Accounting
Deferred Revenue
Cash collected from a customer before the goods or services have been delivered, held as a liability until the obligation is met. Standard for subscriptions, annual plans and deposits. Recognised as revenue progressively as delivery occurs.
Unearned Revenue
Another name for deferred revenue: a customer payment received in advance of performance, carried as a liability because the business still owes the goods or services. It becomes revenue only once the obligation is satisfied.
Bad Debt
A receivable the business has concluded it will not collect. Recognised either directly as an expense when a specific invoice is abandoned, or through an allowance for doubtful accounts that estimates losses in advance.
Write-Off
The accounting entry that removes an asset carrying no remaining value from the books, such as an uncollectible invoice or obsolete stock. Distinct from a write-down, which reduces an asset to a lower value without removing it.
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