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🤩 FACTS ABOUT EACH ITEM ON THE BALANCE SHEET ➔ bit.ly/bsfacts

📚🤔 Check out our Guides 🤓➔ Read them FOR FREE on Kindle Unlimited:
➔ FUNDAMENTAL ANALYSIS OF STOCKS +QUIZ: bit.ly/stockfin
➔ Reading a BALANCE SHEET +QUIZ: bit.ly/3McdXId
➔ FINANCIAL VALUATION: bit.ly/3KCS7wY
➔ Reading PROFIT & LOSS: bit.ly/3oesQ4w
➔ Analyze FINANCIAL RATIOS: bit.ly/3BsTSsm
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📚🤔 Check out our Guide to the Basics of ECONOMICS
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🤨🤔Check out the full guide to analyzing financials in a cynical and skeptical way ➔ bit.ly/4282oJ2

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🤔What are PREPAID EXPENSES? 👀Check this Complete Fast Guide to know them⬇️

A prepaid expense is an expense that you pay for in advance of actually receiving the goods or services that you paid for 💰⏱

For example, let's say you own a retail store and you pay for six months' worth of rent in advance. That rent payment would be considered a prepaid expense because you paid for it before you actually used the space for those six months.

Prepaid expenses are often considered ASSETS on a company's balance sheet, because they represent something of value that the company has paid for but hasn't yet used. They can include things like:

🔹️Rent payments 🏠💰
🔹️Insurance premiums 🛡️💰
🔹️Maintenance contracts 🔧💰
🔹️Subscription services 📰💰
🔹️Advertising campaigns 📈💰

HOW DO THEY WORK?

When you pay for a prepaid expense, the payment is recorded on your company's balance sheet as an asset.

Over time, as you use the goods or services that you paid for, the asset value of the prepaid expense is gradually reduced and the expense is recorded on your company's income statement.

Using the same example as before, let's say you paid $12,000 in advance for six months' worth of rent.

That payment would be recorded as a $12,000 asset on the balance sheet. Over the next six months, as you use the rented space, the asset value of the prepaid rent would be gradually reduced by $2,000 each month, and the $2,000 expense would be recorded on the income statement each month as well.

Here are the journal entries to record the $12,000 paid in advance for rent...

To record the prepayment of rent:

⬆️Debit Prepaid Rent account for $12,000

(Balance sheet account, increased)

⬇️Credit Cash account for $12,000

(Balance sheet account, reduced)

To record the rent expense as it is incurred:

⬆️Debit Rent Expense account for $2,000

(Income statement account, increased)

⬇️Credit Prepaid Rent account for $2,000

(Balance sheet account, reduced)

This second journal entry should be repeated each month for the next six months, until the prepaid rent balance is reduced to zero. By the end of the six-month period, the entire $12,000 prepaid rent balance will have been charged to rent expense on the income statement, and the Prepaid Rent account on the balance sheet will be zero.

______

Prepaid expenses can have a significant impact on a company's financial performance and analysis. For example...

ℹThey can affect cash flow. Prepaid expenses represent cash that you've already spent.

ℹThey can impact financial ratios. Financial ratios like current ratio and quick ratio take into account current assets, including prepaid expenses. If prepaid expenses are a large portion of the current assets, these ratios may be affected. So maybe, for example, it's better to use a quick ratio with selected assets rather than a current ratio with all assets included...

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🔎 Check out our complete Guide to learning all about Fundamental Analysis for Stocks... now on sale here: https://bit.ly/3KZXnfg

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🤓 When it comes to starting a business, there are four main types of organizations to consider: 👤 Sole Proprietorship, 👥 Partnership, 🏢 Corporation and 💼 Limited Liability Company (LLC) ↴

👤 A sole proprietorship is run by one person who has complete control but is also personally liable for any debts;

👥 A partnership involves two or more people sharing the profits and responsibilities. General partnerships have equal responsibility and liability, while limited partnerships have one or more passive investors with limited liability;

🏢 Corporations are owned by shareholders and provide limited liability protection, but they have more regulations and taxes than other types of organizations;

💼 An LLC combines aspects of partnerships and corporations, giving owners limited liability protection and flexibility in management. However, setting up an LLC can be complicated and costly...

🤔 Choosing the right type of organization depends on personal liability, desired control and the regulatory environment. By understanding the advantages and disadvantages of each, you can make an informed decision that will help achieve your business goals. 🎉🚀

🔎 Check out our complete Guide to learning all about Business Administration: amzn.to/3MSdeOe

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💰💸📊 Analyzing the Weighted Average Cost of Capital to know how much return the company should get💹💼

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🏭📈👉Linde in 2022: Revenues, Profitability and Cash Management↴

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📈👉Cost of Sales and Cost of Goods Sold are so many times used interchangeably: let’s find out both their slight and big differences ↴

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📈👉Enterprise Value and Equity Value: how are they linked? ↴

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🍔🍟MCDonald’s 2022: higher Revenues and less Cost of Goods Sold 👉check out this new pill!

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🧈Common Stocks, Retained Earnings, Reserves... check out the typical Equity components in this new knowledge pill ↴

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💼🧾Equity • Market Capitalization • Paid in Capital ↴
is there a link between the market value of equity and what’s reported in the finacial statements?🤔👇

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🧾Tax Expense in the income statement: an item that indicates how much the company would pay based on the accounting EBT... but what about the REAL amount due in the period?🤔👇

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🤔Reporting the Long-Term Debt at its fair (market) value?🛒✔️
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🧑‍🔬Research, Development and relative Asset 🔍

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&d

🔎✨Goodwill: origin, idea and reporting methods📝

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❏❐❑❒ Intangible Assets in the Balance Sheet ➠ can’t see them but can’t deny them ⬎

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💊A Quick Pill on Impairment of Assets🏠📉👇

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🚗🧱🏠Grouping/Compositing Assets to depreciate them all together as one?🤔✍️

👉Let’s see cases and methods...⤵

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🗑️Disposing of an asset to get money💰/another asset📦/nothing😶/a loss📉😱?👇

➠ Let’s see the cases and the accounting procedures✍️

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🤔exchanging a PP&E asset for another one? 🏭🏠✨

☞ Let’s see what it could mean for reporting purposes...

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🤔💲When incurring a cost, do you expense it in the income statement or... capitalize it in the balance sheet?😲

☞ Let’s see some little examples besides that typical and basic one of buying a long-term asset

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💊A on the Capitalization of Interests on a specific loan taken up for that asset’s acquisition/completion🏠

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&e

🏘️⚙️🚚Property•Plant•Equipment ➛typical Fixed Assets!

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&e

☞ important basics for inventory’s value disclosure 🔍👀

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