A prepaid expense occurs when a company pays in advance for a service or goods for which the benefit extends beyond the current accounting period.

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A prepaid expense is an expense for which cash has been paid, but the related goods or services have not yet been provided. The benefit of the prepaid expense extends beyond the current accounting period, so it is considered an asset on the balance sheet until the related expense is recognized in the income statement in the period when the goods or services are received.

A Prepaid Expense Occurs When a Company Pays in Advance