How to show prepaid expense inside trial balance?

-This question was submitted by a user and answered by a volunteer of our choice.

Prepaid expenses refer to the advance payment of goods or services the benefits of which shall be received in the future. Expenses such as prepaid rent, insurance, etc. are shown in the trial balance on the debit side as they are initially an asset for the business, however, once the benefit is received, the value of the asset falls. I would like to explain this further with the help of an example which is as follows,

Example

The trial balance of ABC Ltd. shows the rent amounting to 4,500 as a prepayment for April.

This prepaid rent of 4,500 is shown in the trial balance as follows:

Trial Balance as on 31st March, yyyy

PARTICULARS DEBIT CREDIT
Debtors 50,000
Cash 4,000
Sales 1,30,000
Purchases 90,000
Bank Loan 50,000
Retained earnings 2,000
Salary 5,000
Prepaid rent 4,500
Creditors 26,500
Plant & Machinery 40,000
Investments 15,000
2,08,500 2,08,500

 

Note

  • If the prepaid expenses are already shown in the trial balance it means that an adjusting entry has already been recorded in the books of accounts and they shall be further recorded only in the balance sheet of the company.
  • It shall be shown in the balance sheet of the company under current assets.
  • However, If prepaid expenses are not shown in the Trial balance then these expenses, shall be added to their respective account and recorded on the debit side in the Profit and loss a/c.

Hope this helps.