What are expenses termed when they are paid in advance for several months?

Expenses that are paid in advance for several months are referred to as prepaid expenses. This term applies to costs that have been incurred but not yet expensed in the accounting records. For example, if a business pays rent for several months in advance, that payment is categorized as a prepaid expense until the months for which the rent was paid have elapsed, at which point that amount can be recognized as an expense in the financial statements. This accounting treatment helps ensure that expenses are matched with the revenues they help generate, following the accrual basis of accounting.

Other terms listed refer to different financial concepts. Capital expenditures pertain to the purchase of fixed assets that will provide benefits over a longer term rather than prepaid expenses. Deferred charges can sometimes overlap with prepaid expenses but generally refer to costs that are deferred and will be recognized in the future, potentially causing confusion. Accrued expenses, on the other hand, are expenses that have been incurred but not yet paid, which is the opposite of what prepaid expenses represent.