If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, the failure to make an adjusting entry will cause
A) assets to be understated.
B) assets to be overstated.
C) expenses to be understated.
D) contra-expenses to be overstated.

Question

Quizplus · Accepted Answer

Prepaid expenses are assets representing future economic benefits. If they are recorded as expenses and not adjusted, assets will be understated because the prepaid portion should still be recognized as an asset.

If Prepaid Expenses Are Initially Recorded in Expense Accounts and Have