prepaid expense

Prepaid Expense

An asset that arises on a balance sheet because of the payment of something in advance (prepayment). Services for the payment will be received in the near future.

Notes:

The premium paid to have fire or theft insurance for your business is an example of a prepaid expense.

See also: Asset, Balance Sheet, Current Assets, Deferred Charge, Expense, Prepayment

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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.