A company has an asset account,Prepaid Utilities,with a balance of $3,750 at the beginning of the month.The company used $980 of utilities during the month.Which of the following statements is true?
A)The company should credit Utility Expenses for $980 and debit Prepaid Utilities for $980.
B)Retained earnings and shareholders' equity should decrease because of this transaction.
C)The company should credit Accrued Liabilities for $980 and debit Utility Expenses for $980.
D)Retained earnings and shareholders' equity should be unchanged by this transaction.

Question

Quizplus · Accepted Answer

The use of prepaid utilities is an expense, which decreases net income and subsequently reduces retained earnings and shareholders' equity.

A Company Has an Asset Account,Prepaid Utilities,with a Balance of $3,750