What is the term for expenses paid in advance for future periods?

Expenses paid in advance for future periods are called prepaid expenses.

A prepaid expense is recorded first as an asset because the business has paid for a future economic benefit. Common examples include insurance premiums, rent, subscriptions, and service contracts. As the coverage or service is received, the asset is gradually transferred to expense.

This treatment follows accrual accounting and the matching principle: costs are recognized in the periods they help generate revenue, rather than necessarily when cash changes hands. An adjusting entry at period-end records the portion that has been consumed.

A frequent mix-up is confusing prepaid expenses with unearned revenue. A prepaid expense is a payment made by the business before it receives a benefit; unearned revenue is cash received from a customer before the business performs its obligation. “Deferred expense” or “prepayment” may also be used as near-synonyms, but prepaid expense is the standard quiz answer.