For prepaid expense adjusting entries
A) an expense-liability account relationship exists.
B) prior to adjustment, expenses are overstated and assets are understated.
C) the adjusting entry results in a debit to an expense account and a credit to an asset account.
D) none of these.

Question

Quizplus · Accepted Answer

Prepaid expenses are assets that are paid in advance but have not yet been used or consumed. Prior to adjustment, the prepaid expense is overstated as it includes expenses paid for future periods. Therefore, the adjusting entry reduces the asset and recognizes the expense for the period incurred, resulting in a debit to an expense account and a credit to an asset account.

For Prepaid Expense Adjusting Entries