On July 1 Olive Co.paid $7,500 cash for management services to be performed over a two-year period.Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.On July 1 Olive should record:

Question

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As per the policy of Olive Co., all prepaid expenses are recorded to asset accounts at the time of cash payment. Therefore, on July 1, Olive will record a debit to a prepaid expense (asset) and a credit to Cash for $7,500. This is because Olive has not yet received the services and the expense will be recognized over the two-year period.