When a prepaid expense is initially recorded as an expense, the adjusting entry has the following effect on net income:

Name: When a prepaid expense is initially recorded as an expense, the adjusting entry has the following effect on net income:
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Question

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The adjusting entry for a prepaid expense initially recorded as an expense will increase net income because it corrects the overstatement of expenses by recognizing the portion that should be recorded as an asset.

When a Prepaid Expense Is Initially Recorded as an Expense