Why are Prepaid expenses considered an asset, Prepaid Expenses are consider an asset because they represent a payment made by a company for goods or services that will be receive in the future. Even though the expense has been paid upfront.
It has not yet been incur. Therefore, the amount paid in advance is record as an asset on the balance sheet until the goods or services are receive.
At which point it is recognize as an expense in the income statement. The prepaid expense is an asset, because it has future economic value to the company.
As it represents a cost that will be use to generate revenue in the future.
