This is a basic accounting question. I realize that an increase in prepaid expense refers to the payment of a good or service that is not delivered in the current period. However, doesn't an increase in inventory reflect the same thing? What is the difference that I am missing?
When you pay a prepaid expense these accounts are reflected
+ prepaid expenses account - cash/bank account
when the goods are delivered to you these accounts are reflected
+ inventory account - prepaid expenses account
When you buy goods and get them (without prepaid expenses)
+ inventory account - cash/bank account
Both the inventory and the prepaid expenses accounts are debit accounts and considered to be from the assets of the company and show in the balance sheet.