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When do you adjust the amount of prepaid expenses
The amount of prepaid expenses that have not yet expired are reported on a company's balance sheet as an asset. As the amount expires, the asset is reduced and an expense is recorded for the amount of the reduction. Hence, the balance sheet reports the unexpired costs and the income statement reports the expired costs. The amount reported on the income statement should be the amount that pertains to the time interval shown in the statement's heading.
Prepaid expenses represent payments made for expenses which are not yet incurred hence adjust of the amount needs to be made when these expenses are actually recognised or decrease in the expenses initially recorded.
