Prepaid Expenses Explained: Journal Entry, Amortization & Examples (CPA Tutorial)

What are prepaid expenses, and why do they show up as an asset on the balance sheet instead of an expense on the income statement? In this video, I walk you through prepaid expenses in accounting from start to finish — what they are, how to record the prepaid expenses journal entry, how to amortize them over time, and how prepaid expenses flow through the balance sheet, P&L, and cash flow statement under U.S. GAAP. I'm Julieta, a licensed CPA with over 25 years of experience, and on MyConcierge CPA I break down accounting concepts the way I wish someone had explained them to me when I was starting out — with the mechanics AND the "why" behind every entry. 📌 RELATED VIDEOS 1. Adjusting Journal Entries Explained for Beginners (5 Essential AJEs) https://youtu.be/9TGkAnoM4sQ 2. Deferred Revenue: You Got Paid. So Why Isn't It Revenue? https://youtu.be/6IALaWSAlVM 3. Adjusting Journal Entries Part 2 — Depreciation, Bad Debts & Inventory https://youtu.be/rUqwblCkH7g 4. Accrued Revenue Explained: Why Your Business Looks Profitable but Has No Cash https://youtu.be/Ymc-D-qUpP8 5. Accrued Expenses - https://youtu.be/Q8S2dsfOrJU?si=GmLHccAscNBLVM1R CHAPTERS 0:00 Intro 0:34 Accrual Accounting & Matching Principle 1:33 What Are Prepaid Expenses? 2:27 Prepaid Expenses Under GAAP (ASC 340) 3:00 Prepaid Insurance Journal Entry Example 4:01 Adjusting Journal Entry for Prepaid Expenses 5:14 Financial Statement Impact Explained 6:08 Prepaid Expenses Across Fiscal Years 6:39 Advanced Prepaid Expense Example (IT Support Contract) 8:15 Usage-Based Expense Recognition vs Straight-Line 9:04 Why Prepaid Expenses Are Assets 10:28 How Prepaid Expenses Move Through Financial Statements 11:02 Common Prepaid Expense Challenges in Accounting 11:10 Straight-Line vs Actual Consumption 11:49 Partial Month Conventions 12:10 Materiality Thresholds & Audit Risk 12:47 Wrap Up & Viewer Questions