Prepaid Advertising

What is Prepaid Advertising?

Prepaid advertising is an expense for advertising costs which has been paid in advance. A prepayment is sometimes referred to as a deferred expense.

For example, a business has an annual advertising of 5,000 and pays yearly in advance on the first day of each year. On the 1 January it pays the next years advertising cost of 5,000 to cover the 12 months of January to December. It has a prepaid advertising expense of 6,000.

Prepaid Advertising Debit or Credit?

The journal entry for the prepayment of advertising would involve a credit to cash, as cash is paid out, and a debit to the prepaid advertising account. A prepayment of advertising like any other prepayment is an asset of the business and is included in the balance sheet.

For further information on an prepaid advertising see the Wikipedia definition.

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Prepaid Advertising March 23rd, 2016Team

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