Expenses that relate to future periods but are paid in the current financial period (i.e., in advance). Examples of prepaid expenses include prepaid rent, prepaid insurance, and prepaid taxes. On the balance sheet (statement of financial position), prepaid expenses are recorded as an asset (corresponding to that part of expenses relating to a future period/ periods).

As part of the prepaid expenses gets incurred over time (i.e., the benefits of it as an asset are realized over time), the actual amount relating to the period in which it is incurred is then expensed (that is, charged to the income statement for the period).

Prepaid expenses are spread over multiple accounting periods.