Do Prepaid Expenses affect Retained Earnings?
Prepaid expenses decrease cash and increase prepaid expenses on the balance sheet. What about operational cash on CF and then RE?
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Hi Dinya,
Cash flows from operations are decreased when prepaid expenses are set up, and then there are increasing adjustments to net income in arriving at cash flows from operations as the prepaid expense amount is amortized, as it is a non-cash expense.
Prepaid expenses impact retained earnings as they are amortized into net income. There is no impact upon the original set up.
Hope that helps.
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