Assuming prepaid expenses are originally recorded in balance sheet accounts, the adjusting entry to record use of a prepaid expense is:
A) Increase an expense; increase a liability.
B) Increase an asset; increase revenue.
C) Decrease a liability; increase revenue.
D) Increase an expense; decrease an asset.
E) Increase an expense; decrease a liability.

Question

Quizplus · Accepted Answer

The adjusting entry to record use of a prepaid expense requires increasing an expense account (to match the expense incurred) and decreasing an asset account (as the prepaid expense has been used up). Therefore, the correct choice is D.

Assuming Prepaid Expenses Are Originally Recorded in Balance Sheet Accounts