Are prepaid insurance and prepaid rent expenses?

Question

I am in the process of doing the 3 financial statements for a particular problem. I know how to record and do a trial balance. I and trying to do the 1st of the reports(Income Statement) Which I know is revenue minus expenses. I am stuck on whether prepaid insurance and rent are considered "expenses". When doing a T chart they are both on the Assets side. This is where I am confused. If my Income Statement is wrong does that mean that my Statement of owners equity and Balance Sheet are going to be off too? Please someone help I have an exam tomorrow on this. Thank you!

Answer 1

Prepaid rent and prepaid insurance are current assets. They're not liabilities. Let's say you've prepaid insurance premium for the next 1 yr of say, 1,200. You'd:
Dr Prepaid insurance 1,200 (balance sheet)
Cr Cash 1,200

At the end of every month, you'd:
Dr Insurance expense 100 (income statement)
Cr Prepaid insurance 100

At the end of the 12 months, your insurance expense a/c should have 1,200 and your prepaid insurance a/c should have 0.

Answer 2

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RE:
Are prepaid insurance and prepaid rent expenses?
I am in the process of doing the 3 financial statements for a particular problem. I know how to record and do a trial balance. I and trying to do the 1st of the reports(Income Statement) Which I know is revenue minus expenses. I am stuck on whether prepaid insurance and rent are considered...

Answer 3

Prepaid insurance and prepaid rent expenses are not expenses until they occur. Therefore, they are a liability until the expense happens.

Answer 4

Sandy is correct.
Prepaids are current assets.