What is prepared expense with an example?

A prepared expense refers to an expense that has been recorded in the accounting records before it is actually paid. It is a liability that represents an amount owed by a company for goods or services that have been received but not yet paid for.

For example, let's say a company receives an invoice from a supplier for $1,000 for office supplies. The company records this as a prepared expense by debiting the office supplies expense account and crediting the accounts payable account. This means that the company has incurred the expense of $1,000 but has not yet paid the supplier.

The prepared expense will remain on the company's books until the payment is made. Once the payment is made, the accounts payable account will be debited, and the cash account will be credited to reflect the payment. At this point, the prepared expense is no longer recorded as a liability on the company's balance sheet.