The alternative method of accounting for prepayments
A)Initially records all prepaid expenses with debits to expense accounts.
B)Initially records all prepaid expenses with credits to expense accounts.
C)Requires an adjusting entry because expenses are understated.
D)Requires an adjusting entry if the prepaid is consumed during the period.
E)Requires an adjusting entry because net income is understated.

Question

Quizplus · Accepted Answer

Prepaid expenses are initially recorded as debits to expense accounts, and an adjusting entry is needed to allocate the expense over the period it benefits.

The Alternative Method of Accounting for Prepayments