If Prepaid Expenses Are Initially Recorded in Expense Accounts and Have

question 3

Multiple Choice

If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period then failure to make an adjusting entry will cause

• A) assets to be understated.
• B) assets to be overstated.
• C) expenses to be understated.
• D) contra-expenses to be overstated.

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Definitions:

Duty of Compensation

An obligation to provide payment or restitution for loss, damage, or injury.

Incorporate

The process of legally forming a corporation under state law, effectively creating a distinct legal entity separate from its owners.

Agency by Agreement

A relationship formed through an express or implied contract where one party (the agent) is authorized to act on behalf of another (the principal).

Orally Agrees

To give consent or reach an agreement on something using spoken words rather than written.