An adjusting entry to a prepaid expense
A)is not required in the future if prepaid costs are initially recorded as an asset.
B)reduces a company's liabilities.
C)is required to recognize costs that expire with time.

Question

Quizplus · Accepted Answer

Adjusting entries for prepaid expenses are necessary to recognize the portion of the prepaid amount that has been used up or has expired with time. This ensures that expenses are matched with the revenues they help to generate in the correct accounting period, in accordance with the matching principle of accounting.

An Adjusting Entry to a Prepaid Expense