Final answer:
Cash paid in advance for expenses is recorded as a prepaid expense asset on the balance sheet. Over time, as the service or good is received, the prepaid expense is expensed on the income statement.
Step-by-step explanation:
When cash is paid before the related expense has been incurred, an asset called prepaid expense is reported on the balance sheet. Prepaid expenses represent payments that have been made for services or goods to be received in the future. They are considered assets because they provide future economic benefits to the company. As the expense is eventually incurred, the asset is reduced and the expense is recognized in the income statement.