Are prepaid expenses financial asset?

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In order to confirm whether a particular asset is a financial asset or not, we will have to look at the definition of financial asset

International Accounting Standard IAS 32 defines the term financial asset in para 11.

Although the definition of financial asset is a bit detailed and lengthy but I will be quoting only the relevant part of the definition to understand the status of prepaid expenses.

According to IAS 32 financial asset is any asset that is:

  • Cash
  • a contractual right to receive cash or another financial asset from another entity; or

As against prepaid expenses entity neither receive any cash or any other financial asset nor have the right to receive the same therefore, prepaid expenses cannot be treated as financial asset.

1 COMMENT

  1. If you have made an advance payment for rent and 100 000 relates to the current year and 10 000 relates to the following year, is there a provision in the accounting standards that allows us to expense the whole amount in the current year because it is not material the amount that relates to the next year.

    Thank you

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