Major Difference Between Prepaid Expenses & Accrued Expenses

1. Prepaid Expensesvs Accrued Expenses

2. Whatitis? Whether you are afinance student or havesimply developed an interest to manage your accounts in business, it becomes crucial to understandtheprepaidexpensesandaccruedexpensesarethe technicaljargonsthatdefinethecompany’sBalancesheet. [AllkindsofbusinessexpensescanbemanagedwellwiththeExpense Managementtool] It becomes crucial to realize the difference between these expenses onthebasisof: The timing of the expenses incurred Thefinancialstatementsofacompany

3. PrepaidExpenses: These expenses are expenses incurred because of payments that have been made in advance. Thoughexpensesareusuallyrecordedasa liabilityinthebalancesheetbuttheseexpenses are a slight deviation from the theory because theprivilegescanbeincurredinthefuture. An example of prepaid expense is an insurance premium.Thoughinsurancepaymentisan expensebuthowevertheprimereasonfor undertaking insurancecoverageisto receive futurebenefitsfromthisexpense.

4. AccuredExpenses: The accrued expense is the exact opposite of prepaid expense. Where prepaid expenses are included in the current asset, accrued expenses areincludedinthecurrentliability.Accrued expensesareexpensesthathavebeenincurred butthepaymenthasnotbeenmadeyet. Anexampleofaccruedexpenseincludes: Goods receivedbutnoinvoicehasbeen deliveredforpayment.Torecordthis transaction, the accrued expense is recorded as a credit in the liability account and the office supplies expense is recorded as a debit in the Balancesheet.

5. UsinganExpensetrackingsoftwarelike Invoiceraisthekeytomanagingallkindsof business expenses well. The tool is helpful forrecordingexpensesandwhenthey occur generating detailed expense reports forfinancialanalysis.Also,checkatoolthat helpsinassigning expensesto memberswithinthecompany analyzingthesameinthelongrun. staff and FreeSignupnow!

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