Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 16 - No. 9)
Which of the following statements is correct regarding prepaid expenses?
Prepaid expenses are assets that are expensed at the time of cash outflow.
Prepaid expenses are liabilities that become expenses over time.
Prepaid expenses are assets that become expenses over time.
Prepaid expenses are equity accounts which increase with usage.
Explanation
Prepaid expenses are assets (e.g., prepaid rent) which are converted into expenses over time as the benefit is used.
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