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Accountancy/Prepayments
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Prepayments, also called deferrals, result from cash payment preceding an expense or revenue recognition. The most common example of a prepaid expense is unearned revenue.
Often, businesses pay for services from which they have not yet benefited e.g. rent is often paid in advance.
The double entry for a prepayment is:
1 2005Feb 1 Prepaid Rent (Asset) 50
Cash (Asset) 50
Later when the rent is actually due the entry is:
1 2005Mar 1 Rent (Expense) 50
Prepaid Rent (Asset) 50