What is prepaid expenditure?

Prepaid expenditure is money spent and / or bills* received in advance of receiving goods or services. For example a bill is often sent for purchases of stock before the goods themselves have been delivered. Another common example is insurance which typically is paid annually for the year ahead.

Prepayments do not appear in the statement of profit and loss, they show on the balance sheet as an asset.

*Confusingly it is not necessary for a payment to have been made, an unpaid bill can count towards prepayments.