At the time a company prepays a cost
A) it debits an asset account to show the service or benefit it will receive in the future.
B) it debits an expense account to match the expense against revenues earned.
C) its credits a liability account to show the obligation to pay for the service in the future.
D) More than one of these answers are correct.

Question

Quizplus · Accepted Answer

When a company prepays a cost, it is making an advance payment for a service or benefit it will receive in the future. To record this transaction, the company will debit an asset account (such as prepaid insurance or prepaid rent) to show the amount paid and the future benefit it will receive. This is because the prepayment is an asset to the company until the service or benefit is received.

At the Time a Company Prepays a Cost