A deferred expense such as prepaid insurance is created when cash is paid in advance of the expense being incurred,and is reduced when the expense is actually incurred.

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A deferred expense, such as prepaid insurance, is created when cash is paid in advance and is reduced when the expense is actually incurred. This is because the cash paid in advance is recorded as an asset until the related expense is recognized. Once the expense is incurred, the prepaid expense account is reduced and the related expense account is increased.

A Deferred Expense Such as Prepaid Insurance Is Created When