Prepaid Expense

Accounting Dictionary

Prepaid Expense

When you pay an expense several months in advance it becomes a current asset called Prepaid Expense.

If your rent is $1000 a month, but you paid $6000 when you moved in, you would have an asset called prepaid rent. It’s a thing of value because you don’t have to pay rent for 6 months. If your insurance is $500 a month, but you paid $3000, you would have an asset called prepaid insurance. It’s a thing of value because you don’t have to pay your insurance bill for 6 months.

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