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 expenses are initially recorded as assets, but their value is expensed over time onto the income statement.

Where do prepayments go on the income statement?

In the final accounts prepaid expenses are: deducted from the expense amount of the trial balance before listing it in the Income Statement. shown as a current asset in the year end balance sheet.

How do I record a prepayment?

Accounting for Prepayments

From the perspective of the buyer, a prepayment is recorded as a debit to the prepaid expenses account and a credit to the cash account. When the prepaid item is eventually consumed, a relevant expense account is debited and the prepaid expenses account is credited.