Prepaid Expenses
Companies often pay for goods or sevices in advance. Prepaid expenses reported as current assets on the balance sheet are just such expenditures. The money has already been spent for benefits to be received within one year or the operating cycle, whichever is longer. A typical example is the payment in advance of an insurance premium for future periods. The corresponding account would be an expense reported on the Income Statement – Insurance Expense.
Let's assume a company had a one–year insurance policy which cost of $2400. It purchased the policy in January and recorded the whole amount as prepaid expenses. Every month $200 of prepaid insurance would be expensed to the income statement (Insurance expense) until the prepaid expenses account became empty at the end of the year.
Other common prepaid expenses include:
- prepaid rent
- advertising
- taxes
- office or operating supplies
12 Month Cash Flow Template
The best way to manage your cash levels is with a cash flow analysis tool. This cash flow template is this kind of a tool. Lay out your cash inflows and outflows in an organized fashion and monitor your cash balances from day to day or week to week. This way you will know in advance when you cash balance will be high enough to transfer some of it to marketable securities.
Inventory purchases normally represent the largest outlays of cash in an average company. Plan ahead to keep up with your vendor payments, because once you start lagging behind, you may lose some of your preferential terms with them and nothing is harder to manage than a business whose vendors require an upfront payment for inventory.
Balance Sheet Templates
1, 3 and 5 year balance sheet templates for three different legal entities: LLC, corporation and a sole proprietor.
Balance Sheet Analysis
Learn how to analyze a balance sheet in terms of company's liquidity and solvency using financial ratios such as the current ratio, quick (or acid) ratio, debt to asset ratio and debt to equity ratio.
Return from Prepaid Expenses to Sample Balance Sheet
Return from Prepaid Expenses to Small Business Accounting
