I was running a business and i made few yearly prepayment,but the business colse down.
how should i trear theses expenses in my tax return ie:as full or just pro-rotoa calculation for six month
if i am just calculation for 6 months,what would happen to rest of repayment that i paid.
the prepayment are not retrivable at all
In America, a prepaid expense is an expense that will be charged against Income in the future but we are obligated to paid for at this present time. We will debit Prepaid Expense Account which appear on the balance sheet as an asset, and credit Cash. This Expense has future value, therefore it is classified as an asset.
As the business continues to operate and produces income, the prepaid account is amortized over the useful life of the expense. If the business is dissolved, the remaining balance is debited to expense account and a credit to the prepaid expense account. The business will generate income statement at the date of dissolution, close the books which will update the owner's equity. After creditors are paid, the balance goes to equity owner or owners. It could be positive balance or negative balance depending on the form of business. Limited liability form of companies will not be responsible for negatives owner's which will be owed to creditors, if it is a Sole Proprietorship form of business, the Sole Proprietor is liable for negative equity.
