Accounting Fundamentals Certification (AFC) Practice Test 2026 – The Comprehensive All-in-One Guide to Exam Success!

Prepaid Rent is indeed considered an asset account because it represents a payment made in advance for future use of a rental property. In accounting, an asset is defined as anything of value or a resource owned by a business that is expected to provide future economic benefits. Prepaid Rent qualifies as an asset because it reflects a future economic benefit; the business will utilize the rented property for a specific period after this advance payment.

When a company pays rent in advance, it records this payment as a prepaid expense on the balance sheet. Over time, as the rental period progresses, the prepaid amount is expensed on the income statement, reflecting that the benefit of the asset is being utilized. Thus, it starts as an asset, providing value until it is fully expensed.

In contrast, accounts like Accounts Payable represent liabilities, as they reflect money that the company owes to creditors, while Owner's Equity shows the residual interest in the assets after liabilities have been deducted, and Withdrawals pertain to the owner's withdrawals from the business, which also do not represent assets.