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I don’t quite understand how prepayments decrease expenses so that we adjust (increase) profit if the prepayment was not included in financial statements. The way I see it, prepayment will increase assets in terms of prepayments and decrease assets in terms of cash, which means there is no net effect on profit.
The whole of the amount paid (including the amount prepaid) reduces the cash. If there had been no prepayment than this would reduce the profit by the same amount.
If there is a prepayment then the assets in total only reduce by the amount of the cash paid less the prepayment as does the profit.
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