Prepaid expenses

Prepaid expenses (charges constatées d'avance — CCA) are costs already paid but relating to services or benefits to be received in future accounting periods — annual insurance premiums, software subscriptions, quarterly rent paid in advance. They appear as current assets on the balance sheet and ensure that only the portion of cost relating to the current period is recognised in the income statement. In financial due diligence, their composition and level are reviewed as part of working capital analysis: unusually high prepaid expenses may indicate advance payment of costs to artificially improve the following period's results.

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Example: a Swiss consulting firm presents CHF 340,000 of prepaid expenses at 31 December: SaaS subscriptions CHF 180,000 and professional liability insurance CHF 160,000. These normal prepaid amounts are integrated into the working capital analysis without restatement. However, an additional CHF 85,000 of pre-paid consulting fees for a non-recurring project is excluded from normalised working capital as a one-off item.

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Hectelion decomposes prepaid expenses by nature to distinguish normal operational prepayments from potential manipulation in every working capital review.