An adjusting entry to a prepaid expense is required to recognize costs that expire with time.

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Prepaid expenses are costs that have been paid in advance but have not yet been used or consumed. As time passes, the value of the prepaid expense diminishes and an adjusting entry is needed to recognize the amount that has expired or been used up. This adjusting entry will decrease the prepaid expense account and increase the expense account, reflecting the portion of the cost that is now recognized as an expense for the period.

An Adjusting Entry to a Prepaid Expense Is Required to Recognize