Prepayment – understanding what settlement of debt is

Prepayment literary is a settlement of debt officially known as installment. In accounting, it is a term for installment. Loan which is a part payment, usually done that is made before the due date. Prepayment can come in. Payment of the bill, and other expenses which are meant to settle an. Account before the due date reaches. This action is common among individuals, corporations, or organizations.

Prepayment - understanding what settlement of debt is

What you should know

  • Firstly, do you know that with prepayment. You can settle debt obligations in advance?
  • Secondly, do you know with the tactics of prepayment. Corporations can prepay rent, wages, and some other short-term debt obligations?
  • Do you know that consumers can play. By the tactics of prepayment? You can prepare credit card charges before. They actually receive a statement.
  • Also, do you know that some loans can penalize for prepayment? Mortgage borrowers are. Made aware of this and will agree while they take the loan.

Type of prepayment

There are various sectors in which prepayment can be used. This is because individuals can and large businesses also, engage in prepayment activities. Let’s look at the terms involved in making prepayment in various sectors available.

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PREPAYMENT BY INDIVIDUALS

Private individuals can also make prepayments, having less accounting stress. For instance, as a consumer, you can decide to hold up a credit card bill running for 30 days after the end of the month.  If he eventually incurs much amount and pays off the expenses on the card on the. 30th day of the month, this is a prepayment. This is because the bill is not yet due for another 30 days. Moreover, the consumer gets a statement from the credit card company so he can keep track of his account.

THE CORPORATE PREPAYMENTS

The corporate prepayments are generally prepaid expenses. This will serve as a future expense paid fully in one accounting period. Most corporative do this and step out of facing the challenges of future expenses. Although prepaid expense will be categorized as a current asset on the company’s balance sheet.

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For instance, a company can list account in the. Balance sheet a current asset worth of $8,000 and include $2000 in the space for office rent in a month. This has actually paid off for four months. The company may now have to reduce. The current asset by $2,000 for the covered month.

PREPAYMENT BY TAXPAYERS

Taxpayers make a prepayments regularly as a. Result of a withheld paycheck. This is because employers are required to withhold taxes. Each pay period and send the money to the government on behalf of employees. But generally, tax is supposed to be due on or about April 15 each year.

For Self-employed individuals, you are expected to make a prepayments of taxes by making. Quarterly estimated tax payments. Nonetheless, taxpayers will receive any excess back as a tax refund assuming. He/she pays more than their eventual tax liability.

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