Entry for Prepaid Expenses

The entry for prepaid expenses involves debiting the Prepaid Expense asset account to increase its balance, reflecting the amount paid in advance. This is typically accompanied by a credit to the Cash or Bank account, as funds have been disbursed. Over time, as the prepaid expense is utilized or consumed, adjusting entries are made to reduce the Prepaid Expense account and recognize the corresponding expense on the income statement, ensuring accurate financial reporting.