Prepaid expense Vs expense payable - Interpretation of the accounts

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What is prepaid expense?

Expense already paid during the year but not yet used.


What is expense payable?

Expense already used but not yet paid


Interpretation of the accounts :-


Utilities Expense account
2020

Dr ($)
Cr ($)
Balance($)
Jan 1
Prepaid utilities (1)
1300

1300 Dr
Dec 31
Cash at bank (2)
7500

8800 Dr

Utilities Payable (3)
1200

10000Dr

Income summary (4)

10000
 --

Item  (1)  = Utilities already paid in accounting year 2019 but not yet been used.  It will be used 

                    in the next accounting period, 1 Jan 2020 --31 Dec 2020.

                     So, the transaction (1) was recorded to reverse the Utilities expense $1300 paid in
                     advance last year  to be used this year.

Item  (2) = Utilities was paid during the year 2020 by cheque.

Item (3) = This Utilities payable was recorded to adjust the utilities already used by the business
                   (already incurred)  but not yet paid. So  must be added to the utilities expense

Item (4) = Utilities Expenses incurred for the year to be put into the statement of financial
                 performance

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