PREPAID ( UNEXPIRED) EXPENSES

Prepaid expenses are future expenses that are paid in advance. On the balance sheet, prepaid expenses are first recorded as an asset. After the benefits of the assets are realized over time, the amount is then recorded as an expense.

In some cases , expenses are accounted and also is the liability. But the advantage or benefit of the expense is not completely consumed or exhausted in the accounting year . Thus , a part of benefit of the expense incurred is available in the next accounting year also .Part of expense the benefit of which is available in the next accounting period is known as prepaid expenses . Common examples of such expenses are prepaid insurance , interest paid in advance , etc . UNEXPIRED  paid of expense , i.e.., prepaid expense is carried forward to the next year so that correct profit for the year is determined and also true and fair financial position of the business is shown .

The adjustment entry for prepaid expenses is : 

Prepaid Expenses ( Say Insurance ) A/c.    ...Dr.

  To Expenses ( Say Insurance ) A/c 

( Being the expenses relating to next year transferred to prepaid expenses A/c)