Logo - Business Development Bank of Canada - BDC

Pre-paid expenses

Pre-paid expenses are intangible assets a company has already paid for and expects to benefit from in the short term. Examples include pre-paid insurance, rent paid in advance, as well as legal and security services.

Pre-paid expenses are categorized as current assets because they are used, replaced or converted into cash within a normal operating cycle, typically 12 months. Compared to other current assets such as cash and accounts receivable, pre-paid expenses have low liquidity because they are difficult to convert into cash and their cash benefit is usually delayed.

If necessary, a company can terminate pre-paid contracts and request refunds for amounts it has pre-paid. Credits received this way are discounted according to any existing contractual terms.

More about pre-paid expenses

The balance sheet below shows that ABC Co. had $10,000 in pre-paid expenses as of March 31, 2012. The company's current assets are listed from most liquid to the least liquid. Pre-paid expenses appear last for that reason.

Example of how the pre-paid expenses appears on a company's balance sheet
Your privacy

BDC uses cookies to improve your experience on its website and for advertising purposes, to offer you products or services that are relevant to you. By clicking ῝I understand῎ or by continuing to browse this site, you consent to their use.

To find out more, consult our Policy on confidentiality.