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When we think of prepaid expenses, what comes to mind on first thought is obviously these are expenses.  However, this is not the case. Prepaid expenses are actually current assets. These are considered advances for items such as rent and insurance. Whenever you pay for something in advance, you will use these accounts to pay them debiting the prepaid account and crediting cash. When it come time that the assets are actually due, you will debit the expense for the respective corresponding asset that was originally debited and credit your asset account, thus zeroing out the asset account and properly recording the expense. This will keep your expenses accurate, as well as you being aware of how much you have paid someone in advance, and what is left in the asset account that you prepaid.

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