Question

Prepaid expense example: On Dec. 1, Jones Co. paid $3,000 for newspaper advertising that will run in NOLA Business Journal for Dec, Jan, and Feb. What is the amount of prepaid expense?

Answer 1

On December 1, the entire amount of $3,000 paid by Jones Co. for newspaper advertising is considered a prepaid expense, as the advertising is to be run in the future months of December, January, and February.

Step-by-step explanation:

The student's question relates to the accounting concept of prepaid expenses, which is when a payment for goods or services is made in advance of receiving the benefit. In this example, Jones Co. paid $3,000 for newspaper advertising that will run over the course of three months (December, January, and February). To determine the amount of prepaid expense on December 1, you would divide the total payment by the number of months to get a monthly rate, and then multiply by the number of months that have not yet transpired. Since the payment covers three months and none has transpired yet, the entire $3,000 is considered a prepaid expense initially.

Here's a breakdown:

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At the beginning of December, all months are still in the future, so:

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