At the time a company prepays a cost
A) it debits an asset account to show the service or benefit it will receive in the future.
B) it debits an expense account to match the expense against revenues recognized.
C) its credits a liability account to show the obligation to pay for the service in the future.
D) it credits an asset account and debits an expense account.

Question

Quizplus · Accepted Answer

When a company prepays a cost, it debits an asset account to show the service or benefit it will receive in the future. This is because the company has made a payment in advance for a future benefit, so it is recorded as an asset until the benefit is received. Once the benefit is received, the asset is then expensed.

At the Time a Company Prepays a Cost