Often the term deferred expense indicates that a payment was made more than one year before the cost is expensed. This deferred expense will be reported on the balance sheet as a noncurrent or long-term asset.
Often the term prepaid expense indicates that a payment was made less than one year before the cost is expensed. This prepaid expense is reported as a current asset.
Sometimes an accountant does not intend for there to be a difference. For example, an accountant might say that part of a company's six-month insurance premium should be deferred to the current asset account Prepaid Insurance. Accountants also state that any prepayment of a future expense will result in an adjusting entry known as a deferral.
