![]() ![]() Prepaid expenses can include things like rent, utilities, insurance, and other expenses that are being paid in advance of you receiving the service. They are recorded on your balance sheet as an asset then moved to the P&L as an expense in a future period when the expense for the service is “incurred”. They represent amounts paid out in cash in a month prior to the amount being recorded as an expense in your P&L. Prepaid expenses represent amounts paid to a vendor or supplier in advance of receiving the service. ![]() So, it will almost always be labeled as good. It is hard to imagine the number being a surprise. Labeling the Change as Good or Bad – Deciding whether the change, positive or negative, is good or bad is straightforward with depreciation or amortization because it “is what it is”. I would get with the Controller or bookkeeper to learn what kind of adjustment was recorded. It would indicate that there was an adjustment or correction recorded in the accounting system related to depreciation or amortization expense. It is a positive adjustment because it did not impact your cash balance in the period it showed up in your P&L.Ī negative number – A negative adjustment to cash related to depreciation or amortization should be rare. ![]() The expense in each of those years is “non-cash” in that it does not impact cash in the month or the year it shows up in your P&L.Ī positive number – A positive adjustment to cash related to depreciation or amortization reflects the amount of non-cash charges associated with fixed or intangible assets. If that vehicle had an estimated useful life of seven years, then each of the next seven years will include an expense for depreciation of $5,714 in your P&L. ![]() Instead, it was recorded on your balance sheet as a fixed asset. For example, if you bought a large asset like a vehicle for $40,000 last year, that purchase was not recorded as an expense in your P&L at the time you bought it. Depreciation expense is related to fixed assets like machinery and equipment, vehicles, etc. Amortization expense is related to intangible assets like patents, trademarks, and copyrights, etc.
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