This question is about accountant skills.

What are prepaid expenses in accounting?

By Zippia Team - Dec. 9, 2022

Prepaid expenses in accounting are expenses that are paid for in advance. This includes expenses like insurance policies or rental fees.

Prepaid expenses often benefit from discounts on that specific expense because a business or organization chooses to pay it early. There might also be tax incentives concerning certain prepaid expenses.

On a balance sheet, these expenses are initially recorded as assets. This is because the prepaid expense represents a benefit the company will receive in the future.

Once the product or service's benefit is realized over time, the prepaid expense is converted from an asset to an expense.

Here are some examples of common prepaid expenses:

Prepaid insurance policies
Prepaid rent or leasing fees
Retainer for legal services

What are prepaid expenses in accounting?

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