Prepayment

What is prepayment?

A prepayment is the settlement of a debt or installment payment before its official incurred to date.

It also refers to the advance payment of an expense or the receipt of income before it is earned.

Classic samples of prepayments:

• Rental expenses
• Operating lease expenses (e.g. photocopier machine, etc)
• Insurance premium
• Consultancy services
• Unearned revenue

Common Errors for Prepayment:

• No schedule available to track the progress of prepayment
• Incorrect amortization of prepayment
• Treat advances as prepayment

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