Prepaid expenses: 8 common examples for UK businesses
Not sure what counts as a prepaid expense? Here are eight everyday examples and how to treat each one.
This walkthrough covers what prepaid expenses are, eight common UK business examples including insurance, rent, software subscriptions and training, and how to account for them correctly by posting costs to a balance sheet prepayment account before releasing them monthly to profit and loss. It helps UK finance teams, bookkeepers and small business owners apply correct prepayment accounting treatment.
A prepaid expense is any cost paid in advance of the benefit. If you've paid now for something you'll use later, it's probably a prepayment.
Eight common examples
- Insurance — annual premiums paid up front
- Rent and rates — paid quarterly or annually in advance
- Software subscriptions — yearly SaaS licences
- Professional memberships — annual body/association fees
- Maintenance contracts — service cover paid ahead
- Advertising — campaigns paid before they run
- Domain and hosting — annual renewals
- Training courses — booked and paid before delivery
How to treat them
Post the cost to a prepayment (balance sheet) account, then release it to the profit & loss over the period it covers. See worked entries in prepayment journal entry examples.
At scale
WorkWithLottie finds these prepaid costs in Xero and schedules the monthly releases for you.
Related: What is a prepayment?
Frequently asked questions
What counts as a prepaid expense?
Any cost paid in advance of receiving the benefit — insurance, rent, subscriptions, licences and similar — where the benefit spans a future period.
Are prepaid expenses current or non-current assets?
Usually current assets, because the benefit is typically consumed within twelve months. Longer prepayments can be split between current and non-current.
More on Prepayments
All guidesWhat is a prepayment? Definition & examples
A plain‑English definition of a prepayment in accounting, why it sits on the balance sheet, and everyday examples.
ReadHow to account for prepayments in Xero (with examples)
A step-by-step guide to recording and releasing prepayments in Xero — with worked examples and a faster, automated alternative.
ReadPrepayment journal entry examples (UK)
Clear, worked prepayment journal entries for UK bookkeepers — insurance, rent and annual software — plus how to release them each month.
ReadLet Lottie handle this for you
Automate accruals, prepayments and deferred income on top of Xero. Start your free 7-day trial.
Start free trial