If a company records prepayment of expenses in an asset account,the adjusting entry when all or part of the prepaid asset is used or expired would:
A)Result in a debit to an expense and a credit to an asset account.
B)Cause an adjustment to prior expense to be overstated and assets to be understated.
C)Cause an accrued liability account to exist.
D)Result in a debit to a liability and a credit to an asset account.
E)Decrease cash.

Question

Quizplus · Accepted Answer

The adjusting entry when a prepaid asset is used or expired involves reducing or expensing the asset and recognizing the related expense. This results in a debit to an expense account and a credit to an asset account. This correctly reflects the use or expiration of the prepaid expense and its impact on the financial statements.

If a Company Records Prepayment of Expenses in an Asset