Question

How do I post a prepaid advertising account to the balance sheet if it has a credit balance? I made an adjusting entry for a prepaid advertising expense where I debited advertising expense for 500 and credited prepaid advertising for 500 so now I have a credit balance for prepaid advertising.

Answer 1

Prepaid Advertising account is a type of Current Asset that has Debit Balance and advertising expense account is an expense account that also has Debit Balance.

When advertising amount is prepaid, entry would be as follows:

Prepaid Advertising A/c Dr xxx

To Cash / Bank A/c xxxx

When the expenditure is occured for such prepaid advertising amount, adjustment entry would be as follows:

Advertising Expense A/c Dr xxx

To Prepaid Advertising A/c xxx

Thus, as per the given explanation, prepaid advertising account would be credited only to adjust the balance in it to advertisement expense account.

Hence, prepaid advertisement account never has a base credit balance. It always has debit balance. If it has credit balance, then the first entry mentioned above might had been omitted / forgotten.

First check whether the first entry was passed or not and then pass the adjustment entry. If the advertising expense amount is more than the balance in prepaid advertising account, even then prepaid advertising account should not get credit balance. In such situation, adjustment entry would be follows:

Eg: Prepaid Advertising Account balance is $1000 and actual advertising expense is $1500

Advertising Expense A/c Dr 1500

To Prepaid Advertisng A/c 1000

To Cash / Bank A/c 500

Thus, If advertising expense is more than the balance in prepaid advertising account, then after the adjustment entry balance in prepaid advertising account would be 0 (zero), but should not contain credit balance.

If you dont have cash / bank balance, then open another account named Outstanding Advertising Account and transfer 500 to it which contains credit balance (liability). Thus, Outstanding Advertising Account is what you needed to post credit balance balance but not prepaid advertising account.

Outstanding Advertising Account is posted under Current liabilitied in balance sheet.