Prepaid expenses vs preliminary expenses
Prepaid expenses vs. preliminary expenses are two different types of expenses in accounting. It refer to the expenses that have been paid in advance but will incur in the future. Examples of prepaid expenses include prepaid rent, prepaid insurance and prepaid advertising. These expenses record as assets on the balance sheet until they use up or expire, at which point they recognize as expenses in the income statement.
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Preliminary expenses, on the other hand, refer to the expenses that incur before a company is officially incorporated. These expenses incur during the formation of a company, such as legal fees, registration fees, and fees paid to promoters. Preliminary expenses can treat as an intangible asset and are amortize over a period of five to ten years, depending on the company’s policy.
In summary, prepaid expenses are expenses that are paid in advance. And will be incurred in the future, while preliminary expenses are expenses incurred before a company is officially incorporated.
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