Answer Posted / mohammed mandlaywala

Initial Entry

Prepaid Expense A/c
To Bank A/c

Entry at the time of recognition

Expense A/c
To Prepaid Expense A/c

Explanation:
When an expense is paid in advance, the mercantile system
does not permit the recognition of the same in the P/L
Account. Hence its entry is similar to purchase of an asset.

In the year in which the actual expense is recognised
expense acount is debited and the prepaid expense A/c which
was an asset is now credited and removed from the books.

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Expand---------PCDB

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