Final answer:
Prepaid expenses are payments for goods and services to be consumed in the future and are assets on a balance sheet. They are different from accounts receivable, accounts payable, and expenses, which relate to money owed to and owed by the company, and costs already incurred, respectively.
Step-by-step explanation:
Items such as supplies that will be used in businesses in the future fall into the category of prepaid expenses. These are payments for goods and services that are expected to be consumed within a future accounting period. Prepaid expenses are considered assets on a balance sheet because they provide future economic benefits to the company.
A T-account is a visual representation used in accounting to see the effect of transactions on accounts, consisting of a two-column format resembling the letter 'T'. It shows the debit and credit sides, helping accountants to record and summarize transactions.
It is important to contrast prepaid expenses with other financial items such as accounts receivable, accounts payable, and expenses. Unlike prepaid expenses, accounts receivable represents money owed to the company, accounts payable represents money the company owes, and expenses are costs associated with operating the business that have already been incurred.