Okuzeka
Accounting & Tax vocabulary · Assets, Liabilities & Equity

Prepaid expense

Meaning in accounting & tax, with examples

nounCommon term

In accounting & tax, prepaid expense means: A payment made in advance for goods or services that will be used in a later period, such as a year's insurance, recorded first as an asset.

In Turkish: peşin ödenmiş gider, gelecek aylara ait giderler

How it is used

Also called a prepayment. The asset is released to the income statement month by month as the benefit is used up.

Example sentences

  1. We paid the annual software licence in January, so it sits in prepaid expenses and is released monthly.

  2. Insurance is a typical prepaid expense.

Common collocations

  • prepayments
  • release a prepayment
  • prepaid insurance
  • prepaid rent
  • accrued expenseA cost that belongs to a period but has not yet been invoiced or paid, recorded as an expense and a liability so the period shows its true cost.
  • current assetAn asset that is expected to be turned into cash, sold or used up within one year, such as cash, receivables, inventory and prepaid expenses.
  • accrualAn amount recorded in the period it belongs to, even though cash has not yet been paid or received, such as a utility bill that only arrives next month.
  • deferred revenueMoney received from customers for goods or services not yet delivered. It is recorded as a liability until the company has earned it.

More terms: Assets, Liabilities & Equity

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This page explains English vocabulary for learners. It is not financial advice.