If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, then failure to make an adjusting entry will cause
A) assets to be understated.
B) assets to be overstated.
C) expenses to be understated.
D) contra assets to be overstated.

Question

Quizplus · Accepted Answer

Prepaid expenses are initially recorded as expenses, but if they have not been fully used, they should be adjusted to reflect the remaining benefit as an asset. Failure to adjust will result in assets being understated.

If Prepaid Expenses Are Initially Recorded in Expense Accounts and Have