The reason for the current asset designation is that most prepaid assets are consumed within a few months of their initial recordation. If a prepaid expense were likely to not be consumed within the next year, it would instead be classified on the balance sheet as a long-term asset (a rarity).

Is prepayment a current asset?

Prepaid expenses—which represent advance payments made by a company for goods and services to be received in the future—are considered current assets.

Are prepaid expenses always current assets?

Most prepaid expenses appear on the balance sheet as a current asset, unless the expense is not to be incurred until after 12 months, which is a rarity.