Define prepaid expenses
Accounting term signifying money paid for goods or services upfront. A prepaid expense is considered an asset on the balance sheet. As the goods and services are delivered they are recorded on the income statement. An example of a prepaid expense is insurance, since the policy holder pays money upfront to cover the risk of possible damaging event occurring in the future.
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.