Prepayment: Difference between revisions
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An amount paid in advance for a financial benefit, represented by an asset in the organisation's balance sheet. | An amount paid in advance for a financial benefit, represented by an asset in the organisation's balance sheet. | ||
It is a prepaid expense. | |||
:<span style="color:#4B0082">'''''Example: Venue hire'''''</span> | |||
:We book a venue for a function. | |||
:And pay 50% of the hire fee in advance. | |||
:The 50% paid in advance is an ASSET for us. | |||
:We are going to enjoy the use of the venue in future, but it has already been paid for. | |||
:So the 50% already paid represents a future economic benefit. | |||
== See also == | == See also == | ||
* [[Accrual]] | |||
* [[Average effective maturity]] | * [[Average effective maturity]] | ||
* [[Bookkeeping]] | * [[Bookkeeping]] | ||
* [[Early Repayment Charge]] | * [[Early Repayment Charge]] | ||
* [[Extension risk]] | * [[Extension risk]] | ||
* [[Prepaid expense]] | |||
* [[Prepayment risk]] | * [[Prepayment risk]] | ||
* [[Prepayments]] | * [[Prepayments]] | ||
Latest revision as of 00:50, 2 January 2021
1. Banking.
The non-contractual early repayment by bank customers of, for example, fixed rate mortgages.
2. Accounting.
An amount paid in advance for a financial benefit, represented by an asset in the organisation's balance sheet.
It is a prepaid expense.
- Example: Venue hire
- We book a venue for a function.
- And pay 50% of the hire fee in advance.
- The 50% paid in advance is an ASSET for us.
- We are going to enjoy the use of the venue in future, but it has already been paid for.
- So the 50% already paid represents a future economic benefit.
