How to Record Prepaid Expenses in Balance Sheets?

To record prepaid expenses on a balance sheet, classify the prepaid amount as a current asset. Debit the Prepaid Expense account to increase its balance, reflecting the amount paid in advance. As the prepaid expense is used up over time, adjust the balance sheet by reducing the Prepaid Expense account through periodic adjustments and recognizing the expense on the income statement accordingly, ensuring accurate financial reporting.