When a prepaid expense is recorded initially as an asset, the adjusting entry transfers the used portion of the asset to the expense account.

Question

Quizplus · Accepted Answer

The adjusting entry for a prepaid expense records the portion of the prepaid amount that has been used up or expired during the period as an expense, reducing the asset account and increasing the expense account to reflect the consumption of the asset over time.

When a Prepaid Expense Is Recorded Initially as an Asset