Prepayment
A prepayment is an advance payment recognized as an asset until the related goods, services, or other economic benefits are received.
Accounting recognition concepts that separate the timing of cash payments and receipts from income, expense, asset, and liability recognition.
Accrual accounting separates cash movement from the period in which goods, services, income, or obligations are recognized. A Prepayment records payment before benefit is consumed, while an Accrued Expense records an obligation before cash is paid.
Use contracts, service dates, delivery evidence, cutoff testing, and account roll-forwards to determine the correct period. Invoice and payment dates are evidence, but neither automatically controls financial-statement recognition.
Book timing can also differ from tax timing and cash-flow presentation. These pages are educational and do not provide bookkeeping, accounting, tax, audit, legal, investment, or valuation advice.
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A prepayment is an advance payment recognized as an asset until the related goods, services, or other economic benefits are received.