What category does "Prepayments" fall under?

Prepayments are considered an asset because they represent amounts that have been paid in advance for goods or services that will be received in the future. When a business makes a payment for something like insurance, rent, or subscriptions before the service period starts, that payment does not immediately result in an expense; instead, it creates a future benefit.

These payments are recorded on the balance sheet under current assets because they are expected to provide a future benefit within a year. As the service or time expires, the prepayments are usually then expensed gradually on the profit and loss statement. Thus, classifying prepayments as assets allows businesses to reflect this future economic benefit accurately in their financial statements.