How to reclass prepaid expenses?
I want to reclass a prepaid expenses account. For instance, I have some shopping bags that I bought. How do I reclass it out of the prepaid expenses assets account once these bags have been used. I would credit prepaid expenses but what account would I debit?
Thanks!
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Using company $$ to buy handbags and now you need to hide it??
When you bought the bags you probably did something like:
Dr Prepaids
Cr Cash or AP
As the bags are used, you would:
Dr Expense
Cr. Prepaids
The expense account could be either as COGS expense or an overhead expense depending on the purpose of the bags. The later approach is probably more correct for most instances.
Prepaid expenses can be entered in to Petty Cash Account then reimbursed with a debit against the account for refund
You would debit the expense account on your P&L. Paper goods, perhaps? Office expenses? Shop supplies?
Just remember that the debits are near the door and the credits are near the window. That's accounting humor.
What account would you have normally expensed it in if it were not prepaid? That is where you would put it. It may be supplies if you are using them for your business, but if you are handing them out to customers, then they might be promotions/marketing.
Credit Prepaid
Debit Cost of Goods Sold
Similar to inventory
Debit the expense to which the purchase relates.
Debit CASH