Is prepaid expense a liability?

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What exactly is a prepaid expense? First of all, is it an asset or a liability? In addition,is it included in the current assets or liabilities or in the non current assets or liabilities?

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score 0 · Answer 1 · 2012-12-02T21:35:33+00:00

No prepaid expenses are assets. You have paid for expenses before you actually consumed the economic benefit. For example if you have paid electricity for 2 years in advance, you will have a year of prepaid expense. So you have an asset (the right) to have electricity for a year without paying for it.

score 0 · Answer 2 · 2013-05-07T23:28:54+00:00

Prepaid expenses are things that you have paid in advance so the company that you paid owes you something (a service to be delivered in the future). For you, it’s an asset. For the other company it’s deferred income which is a lliability.