Accounting glossary
What is prepaid expense?
A cost paid before it is consumed — a year of insurance paid in month one. It starts as an asset and expenses month by month as the coverage is used, keeping each period's P&L honest.
Example
You pay $12,000 of insurance in January for the year ahead. In January it is a prepaid expense — an asset — and $1,000 moves to expense each month.
Expensing all $12,000 in January would make one month look terrible and eleven look better than they were.
In SeroBooks
Recurring entries release prepaids on schedule, no memory required. Recurring transactions →