Prepaid Expense

prepaid expense

An expenditure for an item that will provide future benefits. For example, a firm may pay an insurance premium only once a year, resulting in an expense that provides benefits throughout a 12-month period. The unexpired part of the premium is carried on the firm's balance sheet as a prepaid expense.

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Prepaid Expense

An asset on a balance sheet the comes about from a business making payment for a good or service it has not yet received but will receive in the near future. Prepaid expenses are expensed over time as the goods or services are received. A common example of a prepaid expense is an insurance policy.