Prepaid expenses

A prepaid expense is an item of expense that has been paid during the current accounting period but relates to the next accounting period.
For example:

Michel Scofield pays insurance on the factory he rents with cash and this is paid in advance. His payments during 20×1 for this insurance were as follows:
(the prepaid expenses)                              $
1 January (for three months to 31 March 20×8)     800
28 March (for six months to 30 September 20×8)  1,800
2 October (for six months to 31 Match 20×9)     1,800

The insurance expense for the year to 31 December 20X8 can be calculated as follows:

(the calculate of prepaid expenses)                 $
1 January to 31 March 20×1                        800
1 April to 30 September 20×1                    1,800
1 October to 31 December 20×1 (3/6*1,800)         900
3,500

The remaining $900 that was paid on 2 October,which is not to be charged to the income statement for the year to 31 December 20X8, is a prepaid expense. Note that at 1 January there is an opening debit balance on the account of $1,000. This is the three months insurance from 1 January 20×9 to 31 Match 20×9 that had been paid for on 2 October 20×8.

At 2 October 20×8,
$
Dr prepaid expenses(factory insurance)   1,800
Cr cash                                  1,800

At 31 December 20X8,
$
Dr operating expenses                      900
Cr prepaid expenses(factory insurance)     900

The operating expenses ($900) is shown as an item of expense in the income statement at 31 December 20×1. And there is an opening balance ($900) in the account of prepaid expenses, this is an item of asset that be shown in the balance sheet at 1 January 20×9.

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1. Accrued expenses
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3. Income statement example
4. Amortisation of goodwill on consolidation
5. Accruals concept