Prepaid Expenses
It is considered as personal accounts in accounting because they represent an advance payment made by the business for goods or services. It will receive in the future. Personal accounts are those accounts that deal with individuals, firms or entities. That either indebts to the business or have lent money to the business.
In the case of prepaid expenses, the business has paid in advance for goods or services that it will receive in the future. These prepaid expenses considers an asset to the business since the payment has already made but the goods or services yet to receive. As such, prepaid expenses record as a personal account since they represent the amount owed to the business by the supplier of the goods or services.
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When the goods or services eventually receive, the amount of the prepaid expense then transfer to the relevant expense account in the income statement. This is because the prepaid expense is no longer an asset to the business but an expense that has incurred in the current accounting period.
In summary, prepaid expenses considered a personal accounts in accounting. Because they represent an advance payment made by the business for goods or services. That it will receive in the future and as such, represent the amount owed to the business by the supplier of the goods or services.
