The insurance premium paid in the middle of the 12-month accounting period is the most common example of a prepaid expense. These expenses initially record as current assets, but the company will realize the benefits in future years. The company pays prepaid expenses in advance, providing benefits in the coming accounting period. The expense is always recognized when realized, and this prepaid expense is shown under the head’s current asset in the company’s balance sheet. This expense will provide economic benefits in the coming accounting periods.
Prepaid expenses are those of the company that are paid in advance but will record as an expense in the income statement in future years.