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Accounting · Definition

Prepaid Expense

A payment made in advance for benefit not yet received.

A prepaid expense — annual insurance, a software subscription, rent paid quarterly — is recorded as an asset when paid and released to expense over the period it covers.

The mirror image of an accrual, it stops a single annual payment distorting one month. Reviewing the prepayment schedule each period is how the release actually happens.

Also called

  • prepayment
  • deferred charge

Related terms

Accrued Expense

A cost incurred but not yet invoiced or paid.

Accrual Accounting

Recognising income and expenses when they are earned or incurred, not when cash moves.

Deferred Revenue

Money received before the goods or services have been delivered.

More in Accounting

Accounts Payable (AP) Accounts Receivable (AR) Aging Report Bad Debt Provision Balance Sheet Bank Reconciliation Break-Even Point Budget Variance

Prepaid Expense is not just a definition here

Accounting runs on this vocabulary every day in AWRA OpsHub — 51 of our 259 glossary terms describe things the platform actually does.

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