What is Prepaid Advertising?

Prepaid advertising is a current asset account, in which is stored all advertising that was paid for in advance but not yet consumed. As these costs are consumed (such as through the running of television or Internet ads), the applicable portion of this asset is recognized as advertising expense.

If the amount of prepaid advertising is small, there may be no separate general ledger account for it. Instead, the asset is recorded within the prepaid expenses asset account.

Presentation of Prepaid Advertising

When there is a material amount of prepaid advertising on the books, a business may state this amount separately on its balance sheet, as noted in the following exhibit. More commonly, it is aggregated into the prepaid expenses line item on the balance sheet, which contains prepaid amounts for a variety of expenses.