Prepaid expense
In accounting, prepaid expense means cash paid before the benefit is consumed — an asset until it is.
- Layer
- Lexicon
- Defined in
- Lexicon
- Nearby
- 4
Authority
This definition follows ASC 340-10.
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
The lessons that teach this
Accounting, 0 to 1 — a free course taught end to end on one month of one company, with the spreadsheet exercises to work it yourself.
- 08Cash, accrual and cut-offCash accounting records when money moves. Accrual records when value moves. Every hard question in the rest of the course lives in the gap between the two.9 min
- 09Adjusting entriesThree entries nobody sends an invoice for, made on the last day of the month, that turn a record of transactions into a set of accounts.12 min
For founders
The same idea written for a founder: what it costs a startup that ignores it, and what to do in a real month.
- Prepaid expensesCash paid before you use what it buys, like a year of software or insurance. It's an asset that runs down month by month.
- Accrued expenses vs accounts payable: the differenceAP is a bill you’ve received; an accrued expense is a cost incurred before the bill arrives. When to accrue, and how reversing entries work, by example.
What it is not called
Each of these is a real word for a different thing. Using it here is what makes a product read as though it was built by someone who has not done the work.
- prepayment (that is a customer paying us early)
Nearby in the catalog
No component names this concept outright. These are the ones in its part of the system, which is a weaker claim — but a component nothing links to is a component nobody finds.
Terms this one depends on
Also in Foundations
Work with this concept
The calculators that compute it and the ledger payloads that carry it. A definition is where a reader starts; these are where they go next.
- Prepaid & deferred releaseA premium paid on the 17th does not release in twelve equal slices. Day-weighted, or even — your call.Tool
- Prepaid expense vs accrued expenseA prepaid expense is cash paid before the cost is used, an asset; an accrued expense is a cost used before it is paid or billed, a liability — the same timing difference running in opposite directions.Compare
- Journal entry for prepaid insuranceWhen the premium is paid, debit Prepaid insurance and credit Cash. At each month-end, debit Insurance expense and credit Prepaid insurance for the month's share of the policy, until the prepaid balance reaches zero.Entry
- Journal entry for prepaid rentWhen rent is paid in advance, debit Prepaid rent and credit Cash. At each month-end, debit Rent expense and credit Prepaid rent for the month the space was used.Entry
- Journal entry for a prepaid software subscriptionWhen an annual software subscription is paid up front, debit Prepaid software and credit Cash (or Accounts payable). Each month-end, debit Software expense and credit Prepaid software for the days of service used that month.Entry
Defined in Lexicon. This page is generated from that document, so the two cannot disagree.