What are prepaid expenses?
A) Payments made for economic benefits that never expire
B) Classified as liabilities on the balance sheet
C) Generally, all combined into one account called "Miscellaneous Expenses"
D) Assets created by payments for economic benefits that are not used up until later
E) Always debited to an expense account

Question

Quizplus · Accepted Answer

Prepaid expenses are assets that are created when a company makes a payment for an economic benefit that will not expire until a future date. These expenses are recorded on the balance sheet as assets and are gradually expensed over the time period in which the benefit is received. Prepaid expenses are not classified as liabilities and are not combined into one account called "Miscellaneous Expenses". They are initially recorded with a debit to an asset account and a credit to a cash or accounts payable account.

What Are Prepaid Expenses