I know that prepaid expenses are deducted from the year’s expenses, however I don’t get the following:
What’s the entry when we PAY in advance?
Is it: Dr Prepayment (Asset), Cr Cash
OR do we first go like: Dr Exp., Cr Cash and at year-end: Dr Prepayment (Asset), Cr Exp.?
And if we do go by the second route, then when we RECEIVE payment in advance, we go like: Dr Cash, Cr Income THEN Dr Income, Cr Prepaid Income (Liability)
OR simply: Dr Cash, Cr Prepaid Income?
I apologize for wasting your time with all this but do prepaid expenses NEVER appear with eg cash paid?