For prepaid expense adjusting entries
A) an expense-liability account relationship exists.
B) prior to adjustment expenses are overstated and assets are understated.
C) the adjusting entry results in a debit to an expense account and a credit to an asset account.
D) none of these answer choices are correct.

Question

Quizplus · Accepted Answer

Prepaid expenses are assets that have been paid for in advance of actually being used or consumed. Prior to adjustment, the prepaid expense is still an asset and has not yet been recorded as an expense. Therefore, expenses are understated and assets are overstated. The adjusting entry reduces the prepaid asset and records an expense, resulting in a debit to an expense account and a credit to an asset account.

For Prepaid Expense Adjusting Entries