On Decemeber 1, 2007, a firm signed a contract with a local radio station for advertising that will extend over a one-year period. The firm paid $5,400 in advance and debited the amount to Prepaid Advertising.
It should be expensed as it is used. That is, a twelve-month contract costing $5,400 should be expensed over the twelve month period. That’s $450 per month.
Each month a credit of $450 would be made to the prepaid advertising account and a debit of $450 would be made to the advertising expense account. At the end of the contract period, there will be no remaining prepaid advertising balance related to this contract.
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It should be expensed as it is used. That is, a twelve-month contract costing $5,400 should be expensed over the twelve month period. That’s $450 per month.
Each month a credit of $450 would be made to the prepaid advertising account and a debit of $450 would be made to the advertising expense account. At the end of the contract period, there will be no remaining prepaid advertising balance related to this contract.
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