A prepayment is originally recorded as an asset.Later,at the end of the accounting period,an adjustment is recorded causing a(n)______ in the asset account and a(n)______ in the expense account.

Question

Quizplus · Accepted Answer

A prepayment is an asset because it represents a payment made in advance for goods or services that will be received in the future. At the end of the accounting period, an adjustment is needed to recognize the portion of the prepayment that has now been used or consumed. This adjustment decreases the asset account because the prepaid amount has been reduced, and increases the expense account because the cost of the prepaid goods or services has now been recognized as an expense. Therefore, the correct answer is D: decrease in the asset account and increase in the expense account.

A Prepayment Is Originally Recorded as an Asset