Prepaid expenses: Learn how to record

Learn how to record prepaid expenses in accounting with examples and quizzes. Prepaid expenses are those expenses paid in advance for a benefit yet to be received. Prepaid expenses are those expenses which have been paid in advance, however, the related benefits are not received within the same.. A prepaid expense is an expense that is paid for in advance. Recurring expenses such as insurance and rent can be paid for with one payment that covers the cost of the expense for several months or even a year. Often, businesses prepay expenses in this manner because they can receive a discount. Prepaid expenses also provide a benefit to a business by relieving the obligation of payment for future accounting periods. In this manner, prepaid expenses are considered an asset. Anything that has ... Learn what prepaid expenses are, how to account for them under accrual and cash basis, and see common examples of prepaid expenses such as lease contracts, software subscriptions, and insurance premiums. Find out how prepaid expenses affect liquidity ratios and financial reporting.