Prepaid Expenses allocation

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1

Interested to know what people do with expenses prepaid so it does not mess up acutual expenses. For example paying rates on house one year in advance. Cheers Henry

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You are mixing cash method of accounting concepts and accrual method of accounting concepts. Prepaid expenses are used if you are on the accrual method of accounting. You are on one method or the other method. Individuals are always on the cash method of accounting. See below for a brief discussion. Let me know if you want further discussion.

B

https://www.investopedia.com/ask/answers/09/accrual-accounting.asp#:~:text=Key%20Takeaways,documented%20until%20cash%20exchanges%20hands.

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I wouldn’t do anything special with that. To me, an expense incurred and paid is an actual expense, even if it was prepaying something. I don’t see how that messes up your other expenses… it just means what you paid out was high that period. I would (hopefully) have been saving for it in advance so my “budget” would have been pretty even.

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Thanks Blake. Yes I am aware of the difference (was an accountant in a previous life). Thought there maybe some way to park some of the expense and feed it in over time .