When a company prepays for an expense, it is recognized as a prepaid asset on the balance sheet, with a simultaneous entry being recorded that reduces the company’s cash (or payment account) by the same amount.
Is prepaid rent the same as rent expense?
In layman’s terms, the difference is simple: A rent expense is the amount you have to pay under a lease agreement, and prepaid rent is any rent expense that you pay in advance of the due date.
How do you record a prepaid expense?
When first recording the prepaid expense entry, you should debit the asset account for the amount paid and subtract the same amount from your cash account. Using the above example, you would add $6,000 in assets to your prepaid insurance account and credit $6,000 from your cash account.