• What is a prepaid expense?

    A prepaid expense is expenditure you incur for things to be done under an agreement (in whole or in part) in a later income year. If expenditure is incurred for something to be done in full within the same income year, it is not a prepaid expense to which the prepayment rules apply.

    Example: expenditure constituting a prepayment

    On 1 June 2002 XYZ Ltd paid $1,500 for an annual subscription for the monthly provision of a professional journal. The subscription covers the period 1 June 2007 to 31 May 2008. Because the thing to be done under the agreement - the provision of the professional publication - will not be completed wholly within the expenditure year, the prepayment rules will apply.

      Last modified: 25 Jun 2008QC 16667