Prepaid expenses are expenses that are paid for in advance before they are actually used or consumed. They are recorded in an asset account because they represent a future economic benefit that the company has already paid for. Once the expense is used or consumed, it is then recorded as an expense and the prepaid asset account is reduced.

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Prepaid Expenses Are

Question 22

Multiple Choice

Prepaid expenses are

A) paid and recorded in an asset account after they are used or consumed.
B) incurred but not yet paid or recorded.
C) paid and recorded in an asset account before they are used or consumed.
D) incurred and already paid or recorded.

Correct Answer: