Glossary · Finance operations
Prepaid expenses
Cash paid before the service arrives, held as an asset and released as the work is done.
Biotechs pay in advance more than most businesses: CRO start-up and set-up fees, CDMO capacity reservations, annual software and insurance, deposits on long-lead materials, and upfront fees on licensed technology. Each is recorded as a prepaid asset and expensed as the related service is performed, following the same activity measures used for accruals.
The prepaid schedule lists each contract, the amount paid, the release method, and the remaining balance. At quarter-end, the schedule is reconciled to the ledger, and balances that relate to cancelled programs or completed work are written off. Auditors test the largest balances and the release assumptions.
Prepaids and accruals are two sides of the same estimate. A company that tracks one without the other will misstate R&D expense in both directions and will not know it until the audit.
General explanation, not accounting, tax, or legal advice for any specific company. Standards and tax law change; the entry reflects my understanding as of September 2026.