Final answer:
The term 'deferred expense' refers to a cost that is paid upfront and expensed over time; in the options provided, prepaid advertising is a deferred expense.
Step-by-step explanation:
The item that should be treated as a deferred expense by a company is c. prepaid advertising. A deferred expense, or prepaid expense, is an expense that has been paid in advance and will be expensed out over time as the service or product is actually used or consumed. In the case of prepaid advertising, a company may pay for several months of advertising services upfront. This advance payment represents a future economic benefit to the company, hence it is recorded as an asset on the balance sheet and expensed over the period the advertising services are consumed.
As the advertising services are used over time, the company will gradually expense the cost, reducing the asset account (prepaid advertising) and recognizing the expense on the income statement. This process aligns the cost of the advertising with the period in which the benefits of the advertisement are realized, adhering to the matching principle of accounting.