Prepaid income also known as unearned income, which is received in advance before supply of goods or services.
Prepaid income or advance received is treated as a liability in the supplier books of accounts.
Examples of income received in advance is rent received in advance, commission received in advance etc.
Accounting Entry for Income Received in Advance
Bank A/c Dr 30,000
To Prepaid Rent Income A/c 30,000
When income is recognised as income in the next accounting period, then we have to post below accounting entry.
Prepaid Rent Received A/c Dr 30,000
To Rent Received A/c 30,000
Bank A/c Dr 20,000
To Prepaid Commission Received A/c 20,000
Prepaid Commission Received A/c Dr 20,000
To Commission Received A/c 20,000
What is Petty Cash?
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