Which of the following reflect the balances of prepayment accounts prior to adjustment?
A) Balance sheet accounts are understated and income statement accounts are understated.
B) Balance sheet accounts are overstated and income statement accounts are overstated.
C) Balance sheet accounts are overstated and income statement accounts are understated.
D) Balance sheet accounts are understated and income statement accounts are overstated.

Question

Quizplus · Accepted Answer

Before adjustments, prepayment accounts (assets) are overstated because they have not yet been expensed. Consequently, the related expense accounts on the income statement are understated, as the expenses have not yet been recognized.

Which of the Following Reflect the Balances of Prepayment Accounts