The correct answer is:
A. an Asset ✅
👉 Explanation:
A prepaid expense is something a business pays for in advance (like insurance, rent, or subscriptions) but will receive the benefit of in the future.
Since it represents a future economic benefit, it is recorded as a Current Asset on the Balance Sheet.
It is not Owner’s Equity (which represents the owner’s investment) and not a Liability (which is an obligation).
💡 Example: If a company pays ₹12,000 for a 1-year insurance policy in January, the unused portion (say 11 months) is recorded as Prepaid Expense (Asset).