Question

When dealing with any "prepaid," the company "owes" service and liabilities only have the word "payable" in the account. What are our thought s on this? Please answer in your own words. Do not use outside resources.

Answer 1

Firstly we will Understand why we use word Prepaid.

Pre means earlier and Paid means payment via any mode either Cash/ Bank. Generally this word is used when you have paid in advance for something which shall be completed in next financial year. When dealing with prepaid word Company owes service because here prepaid word represents that we have paid earlier for something or for any service which is yet to be taken by company. There can be many reasons for that like we all know construction work require time sometimes we pay whole the amount in beginning to the contractor in that construction service is yet to be taken by the company. One of common used example is Insurance Expense

Liabilities means any obligation which is not yet completed by the company. Defination of liability in short is, any obligation which arises by the any action done by the company in past. For example If we purchase something on credit it creates liability on us to pay for the same. In other words I can say that I am payable to you for the amount of good I had purchased from you on credit.

Hope this meets your purpose. Please feel free in case of any concern. Do like if it was help as it motivates us alot.

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