Prepaid expenses are included in the current assets section of the balance sheet because
A) they will be converted into cash within one year or the operating cycle, whichever is longer.
B) if they had not been already paid they would require the use of cash during the next year or operating cycle.
C) they were already included in operating expenses on the income statement in the year cash was expended.
D) they reflect payments that were made in a prior period that will not be charged to expense in the current period.

Question

Quizplus · Accepted Answer

Prepaid expenses are considered current assets because they represent future economic benefits that the company has already paid for, which, if not paid in advance, would require the use of current assets (cash) in the next year or operating cycle. They are not converted into cash but rather into the benefit of the service or product for which they were prepaid.

Prepaid Expenses Are Included in the Current Assets Section of the Balance