Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 15 - No. 21)
What happens when a business has prepaid expenses at the end of the accounting period?
Expense is recognized on the income statement.
Expense is deferred to the next period.
Assets decrease.
Liabilities increase.
Explanation
Prepaid expenses represent future expenses; the cost is deferred to the period when it is used or consumed.
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