What is the double entry for recording a prepaid expense?

Recording a prepaid expense involves recognizing that a payment has been made for an expense that will be recognized in a future accounting period. The double entry reflects this transaction:

When a prepaid expense is recorded, the business debits (increases) the "Prepayments" account, which is an asset. This indicates that the company has allocated funds for a service or product that it will receive in the future. At the same time, the business credits (decreases) the corresponding expense account, representing the fact that although cash has been paid, the actual expense will only be recognized in later periods when the benefit is received.

This accounting treatment ensures that expenses are recognized in accordance with the accrual basis of accounting, matching expenses to the periods in which they are incurred. This aligns with the concept of prepayments being an advance payment for future services or benefits, not a current expense at the time of payment.