What is the treatment of Prepaid and Arrears in Balance Sheet



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Which side of the Balance Sheet is Prepaid or Arrears posted

4 Answer(s)


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Accrued expense:
Dr Expenses (profit and loss account)
Cr Accruals (balance sheet liability)
Prepaid expenses:
Dr Prepayment (balance sheet asset)
Cr Expenses (Profit & Loss account)

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Prepayments are Current Assets if they pertain to a period of less than or equal to 1 year after the Balance Sheet Date. for e.g. if Rent is prepaid Rs.60,000/- (Rs.10,000 per month for 6 months) on April 01, 2014 then the Balance Sheet as at April 30, 2014 will show an amount of Rent Prepaid of Rs.50,000/- (Rs.60,000 minus April rent of Rs.10,000/-) under the group Current Assets.

If prepayments pertain to a period of greater than 1 year then the portion which falls above one year is shown under Long-term Assets.

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Arrears Due to another party by us are generally classified under Current Liabilities. If for e.g. Electricity Bill is not paid by us it will show as arrears in the next bill. In such a case it should be classified under Current Liabilities.

however if the arrear amount pertains to a period of more than one year then the amount falling after one year should be shown under Long-Term Liabilities and the amount falling within one year should be shown under Current Liabilities.

If you want further explanation let me know.

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Prepayments are Current Assets if they pertain to a period of less than or equal to 1 year after the Balance Sheet Date. for e.g. if Rent is prepaid Rs.60,000/- (Rs.10,000 per month for 6 months) on April 01, 2014 then the Balance Sheet as at April 30, 2014 will show an amount of Rent Prepaid of Rs.50,000/- (Rs.60,000 minus April rent of Rs.10,000/-) under the group Current Assets.

If prepayments pertain to a period of greater than 1 year then the portion which falls above one year is shown under Long-term Assets.

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