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.
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