Following amortization, the prepaid expense, such as house rent, gradually decreases to zero. Some of the common examples of prepaid expenses are monthly, quarterly, half-yearly, or yearly payments made toward a product or service. As the prepaid expense is gradually expensed, the amount amortization of prepaid expenses is transferred from the asset account to the expense account on the income statement. This process reflects the decrease in the value of the prepaid expense as its benefits are realized. Companies make these prepayments to secure future benefits and manage their cash flow effectively.

Generally, forward-looking information can be identified by the use of forward-looking terminology such as, “will be” or variations of such words and phrases or statements that certain actions, events or results “will” occur. Forward-looking statements regarding the completion of the transaction are subject to known and unknown risks, uncertainties and other factors. There can be no assurance that such statements will prove to be accurate, as future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. Nextech will not update any forward-looking statements or forward-looking information that are incorporated by reference herein, except as required by applicable securities laws. The Company also develops or acquires disruptive AI-technologies, which are subsequently spun out to shareholders as standalone public companies.

Touchless Receivables. Frictionless Payments.

For example, an amortization schedule for one year of prepaid insurance would show twelve monthly payments and the corresponding reduction of the total value of the insurance coverage until it reaches zero and a new premium must be paid. Many purchases a company makes in advance will be categorized under the label of prepaid expense. These prepaid expenses are those a business uses or depletes within a year of purchase, such as insurance, rent, or taxes. Until the benefit of the purchase is realized, prepaid expenses are listed on the balance sheet as a current asset. Deferred expenses, also known as deferred charges, fall in the long-term asset category. When a business pays out cash for a payment in which consumption does not immediately take place or is not planned within the next 12 months, a deferred expense account is created to be held as a noncurrent asset on the balance sheet.

The calculated equivalent of a monthly retainer will be recorded as an expense in each of the twelve monthly accounting periods within the year. This will allow the business to apply or match the expense of the legal retainer evenly to each reporting period that is receiving the benefit of the legal services. Each month, an adjusting journal entry of $10,000 (the equivalent of one month’s rental payment) will be credited in the prepaid rent account and debited in the office rent expense account.

Prepaid Expenses and Lease Types

Failure to do so can lead to incorrect financial reporting, misrepresenting a company’s financial position, and jeopardizing financial transparency. The company will first record the total amount of Prepaid Rent as a Debit Amount and Cash as Credit. LeaseCrunch has a team full of CPAs, former FASB staff, and Big Four public accounting auditors ready to answer your toughest lease accounting questions. Prepaid expenses and how they affect a lease depends more on how a lease is written than whether or not it is a commercial lease or has a lease incentive as a part of the contract. For example, on 01 January 2019, ABC Co has made an advance payment for the advertising space on one TV channel for US$20,000 per year until 31 December 2019.

For instance, prepaid software licenses may become outdated before expiration, wasting resources. There may be scenarios that arise when accounting for leases under ASC 842 that require specific clarification. For those unable to join the live event, a recording of the presentation will be posted on the Company’s investor relations website.