What is the term for cash paid for an expense in one fiscal period that is not used until a later period?

The term for cash paid for an expense in one fiscal period that is not used until a later period is a prepaid expense. This accounting concept refers to payments that a company makes in advance for services or goods that will be received in the future. For instance, if a business pays its insurance premiums for a year upfront, the payment is recorded as a prepaid expense on the balance sheet. Over time, as the insurance coverage is utilized, the expense is then recognized on the income statement in the relevant periods.

Prepaid expenses are assets until they are consumed or expire, at which point they become expenses in the financial statements. This matching principle ensures that expenses are recorded in the period they are incurred, reflecting the true financial position of the company. Consequently, recognizing prepaid expenses helps maintain accurate financial reporting in accordance with accounting standards.