Expenses paid in advance of the use of services or goods give rise to an asset until the goods and services are used, consumed, or expired.

Question

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When expenses are paid in advance, it creates a prepayment asset on the balance sheet until the goods or services are used, consumed, or expired. Once they are used or consumed, the prepayment is recognized as an expense in the income statement.

Expenses Paid in Advance of the Use of Services or Goods