prepaid expense

Definition

An accounting term signifying money paid for goods or services upfront. A prepaid expense is considered an asset on the balance sheet. As the goods and services are delivered they are recorded on the income statement. An example of a prepaid expense is insurance, since the policy holder pays money upfront to cover the risk of possible damaging event occurring in the future.

Use prepaid expense in a sentence

Every year my company pays business insurance for the upcoming year, since the insurance is paid-in-full upfront it is considered a prepaid expense.

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prepaid insurance current assets