When a prepaid expense is initially recorded as an expense, the adjusting entry would include a:

Question

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When a prepaid expense is initially recorded as an expense, the adjusting entry corrects this by debiting the prepaid expense account (to increase the asset for the prepaid amount) and crediting the expense account (to decrease the expense). This adjustment ensures that the expense is recognized in the period in which it is incurred, aligning with the matching principle.

When a Prepaid Expense Is Initially Recorded as an Expense