USA Prepaid Expenses


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I have stumbled upon a passage on prepaid expenses that I do not understand. It states:

"How is including prepaid expenses in the current assets section justified? The rationale is that if a company did not pay these items in advance, it would instead need to use other current assets during the operating cycle. If we follow this logic to its ultimate conclusion, however, any asset previously purchased saves the use of current assets during the operating cycle and would be considered current."

The passage is confusing and I hope someone can help me break it down.
 
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kirby

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Good grief! That’s horrible and confusing! :eek:
Where is that passage from? Name of book or internet source?
Anyway, the correct answer is prepaid expenses are classified as current assets because they represent benefits to be received within a year or the operating cycle, if that is longer.
 
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Yes. It is from my intermediate accounting textbook.
 

Werner Reisacher

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Kirby - learning is a life long experience. There must be a deeper meaning and a spiritual philosophy about this topic. People like you and I have not been privileged to explore the full spectrum and dimensions, nor the deeper meaning of Accounting.
Please let me know if you ever reach that level.
 

kirby

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Sending you a private message. Sign in to forum and click on envelope icon at top.
 
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kirby

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Werner,

Yes, Werner. I reached that level last week. I was inside Costco to buy TP and sundries. Suddenly, a bright light appeared and there next to the paper towels was Friar Luca Pacioli, the father of accounting. He said he was there to impart THE KNOWLEDGE to me. I asked him if he would first hand me two 12 -packs of Bounty cause there were very few left. He said one was the limit. But when he handed me the Bounty I felt empowered. I knew then I could select-a size at will. Friar Pacioli said "May the Force be with you" and vanished. From that day forward, there is no accounting mess I cannot clean.
Veni, Vini, Cessi. ( I came, I saw, I left)
 
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