Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 18 - No. 50)
Which of the following statements are true about adjusting for prepaid expenses?
A prepaid expense is an expense paid in advance, that isn't used up or invoiced for earnings.
An annual expense that is used up or invoiced has to be recorded in the expense account.
The credit entry is then carried over as a prepaid item on the debit side of the accounts beyond the accrued expense.
A prepaid expense should not be changed to profit until it is used up or invoiced. And so does the expense entries.
Explanation
Prepaid expense is paid in advance for an expense that has not yet been used. Annual expenses used or invoiced must be recorded in the expense account.
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