Prepaid expenses are classified as current assets if the services purchased are expected to expire within twelve months or the operating cycle, if that is longer.

Question

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Prepaid expenses are considered current assets if the services purchased are expected to expire within twelve months or the operating cycle, whichever is longer. This is because they represent cash paid in advance for goods or services that will be received in the near future. If the prepaid expenses are expected to expire beyond the current operating cycle, they would be classified as long-term assets instead of current assets.

Prepaid Expenses Are Classified as Current Assets If the Services