BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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paid and recorded in an asset account before they are used or consumed.
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paid and recorded in an asset account after they are used or consumed.
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incurred but not yet paid or recorded.
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incurred and already paid or recorded.
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Detailed explanation-1: -Prepaid expenses are first recorded in the prepaid asset account on the balance sheet as a current asset (unless the prepaid expense will not be incurred within 12 months). Once expenses incur, the prepaid asset account is reduced, and an entry is made to the expense account on the income statement.
Detailed explanation-2: -Prepaid expenses: Expenses paid in cash and recorded as assets before they are used or consumed.
Detailed explanation-3: -Prepaid expenses are recorded as an asset on a business’s balance sheet because they signify a future benefit that is due to the company. Prepaid expenses are amounts paid in advance by a business in exchange for goods or services to be delivered in the future.
Detailed explanation-4: -In accounting, these payments or prepaid expenses are recorded as assets on the balance sheet. Once incurred, the asset account is reduced, and the expense is recorded on the income statement.
Detailed explanation-5: -Prepaid expenses represent expenditures that have not yet been recorded by a company as an expense, but have been paid for in advance. In other words, prepaid expenses are expenditures paid in one accounting period, but will not be recognized until a later accounting period.