Prepaid assets explained

Prepaid assets are expenses, such as rent or insurance, that you paid for in advance.  For example, suppose you paid three months’ rent in advance on January 1.  This would be an asset for the three months that you would be entitled to use the rented space, and would appear on the balance sheet with other assets.

George is Keeping an Eye On You! by peasap, on Flickr

Prepaid assets are sometimes referred to as prepaid expenses.

As they expire, prepaid assets become expenses.

When prepaying expenses, carefully weigh the pro’s and con’s of paying earlier, rather than later.  Is there a discount for prepayment?  Is there a penalty or interest charge for paying for a service in installments?