Accounting Dictionary

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Prepaid Expense

Definition: Prepaid expense is an expenditure that is paid for in one accounting period, but for which the underlying asset will not be entirely consumed until a future period. Consequently, it is carried on the balance sheet as an asset until it is consumed. An example is insurance, which is frequently paid in advance for multiple future periods; an entity initially records this expenditure as a prepaid expense, and then charges it to expense over the usage period.