Colonial Systems prepares monthly financial statements.Colonial would record a prepaid expense in each of the following situations except:
A)Colonial Systems purchased a two-year fire insurance policy.
B)Colonial Systems paid for six months' gardening services in advance.
C)A tenant paid Colonial Systems three months' rent in advance.
D)Colonial Systems purchased enough office supplies to last several months.

Question

Quizplus · Accepted Answer

Prepaid expenses are costs that have been paid but not yet consumed. In option C, when a tenant pays rent in advance, it is considered unearned revenue for Colonial Systems, not a prepaid expense. Options A, B, and D involve payments made by Colonial Systems for future benefits, fitting the definition of prepaid expenses.

Colonial Systems Prepares Monthly Financial Statements