Prepaid expense
In one sentenceAn expense paid in cash before its benefit is received, such as a year's rent in advance; it is recorded as an asset and then charged to expenses gradually.
Simply put
You paid today for a benefit you will receive later, so the part you have not yet benefited from is an asset of yours, turning into an expense over time.
Examples: rent paid in advance, annual insurance and annual software subscriptions. At the end of each period its share is moved to expense with an adjusting entry.
Worked example
A restaurant paid a full year's rent of 120,000 SAR on 1 July, and its fiscal year ends on 31 December.
Monthly rent (120,000 ÷ 12)10,000 SAR
Rent expense for six months (10,000 × 6)60,000 SAR
Prepaid expense at 31 December (120,000 − 60,000)60,000 SAR
Don't confuse it with
Accrued expenseThe opposite: you benefited from the service and have not paid yet, so it is a liability.