Which of the following reflect the balances of prepayment accounts prior to adjustment?
A) Statement of financial position accounts are understated and income statement accounts are understated.
B) Statement of financial position accounts are overstated and income statement accounts are overstated.
C) Statement of financial position accounts are overstated and income statement accounts are understated.
D) Statement of financial position accounts are understated and income statement accounts are overstated.

Question

Quizplus · Accepted Answer

Prepayment accounts represent expenses that have been paid in advance and recorded as assets on the statement of financial position. However, because the expense has not yet been incurred, the income statement accounts are understated. Therefore, the statement of financial position accounts are overstated and the income statement accounts are understated prior to adjustment.

Which of the Following Reflect the Balances of Prepayment Accounts