Prepaid expenses are eventually expected to become
A)expenses when their future economic value expires
B)revenues when services are performed
C)expenses in the period when they are paid
D)revenues when the liability is no longer owed

Question

Quizplus · Accepted Answer

Prepaid expenses are payments made in advance for goods or services that will be used or received in the future. They are initially recorded as assets but are eventually expected to become expenses when their future economic value expires. This usually happens when the goods or services are used up, consumed, or expire. For example, if a company pays $12,000 in advance for a one-year insurance policy, it would initially record the payment as a prepaid expense asset. However, it would recognize $1,000 ($12,000/12 months) as an insurance expense each month for the next year as the insurance policy expires monthly.

Prepaid Expenses Are Eventually Expected to Become