If a Company Records Prepayment of Expenses in an Asset

question 107

Multiple Choice

If a company records prepayment of expenses in an asset account,the adjusting entry when all or part of the prepaid asset is used or expired would:

• A)Result in a debit to an expense and a credit to an asset account.
• B)Cause an adjustment to prior expense to be overstated and assets to be understated.
• C)Cause an accrued liability account to exist.
• D)Result in a debit to a liability and a credit to an asset account.
• E)Decrease cash.

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Definitions:

Enlightenment

A philosophical movement of the 18th century, emphasizing reason, individualism, and skepticism of traditional doctrines.

Human Reason

The capacity of the human mind to analyze situations, make judgments, and solve problems.

Socialism

An economic institution characterized by state ownership and management of the basic industries.

Capitalism

An economic system characterized by private or corporate ownership of capital goods, investments determined by private decision, and prices, production, and distribution of goods determined primarily by competition in a free market.