|Investing Lesson 3|
|Analyzing a Balance Sheet - Part 9|
In the course of every day operations, businesses will have to pay for goods or services before they actually receive the product. If a department store moved into your neighborhood mall, most likely they would sign a rent agreement and be required to pay for twelve months' rent in advance. If the monthly rent was $1,000 and the business prepaid for an entire year, they would put $12,000 on the balance sheet under Prepaid Expenses ($1,000 monthly rent x 12 months = $12,000). Each month, they would deduct 1/12 from the prepaid expenses until the end of the year, at which point, the amount would be $0.