All of the following are true regarding prepaid expenses except:
A) They are paid for in advance of receiving their benefits.
B) When they are used, their costs become expenses.
C) They are assets.
D) The adjusting entry for prepaid expenses increases expenses and decreases liabilities.
E) The adjusting entry for prepaid expenses increases expenses and decreases assets.

Question

Quizplus · Accepted Answer

Prepaid expenses are initially recorded as assets, and when they are used, the adjusting entry increases expenses and decreases assets, not liabilities.

All of the Following Are True Regarding Prepaid Expenses Except