When Making the Adjustment for Prepaid Insurance, Instead of Writing

question 63

Multiple Choice

When making the adjustment for prepaid insurance, instead of writing off only the time that has passed, the entire policy was written off. This would:

• A) overstate the assets.
• B) overstate the liabilities.
• C) understate net income.
• D) understate expenses.

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Definitions:

Items

Individual objects or units, especially those included in a list or collection.

Economic Profits

The difference between total revenue and the total costs (both explicit and implicit costs) of a company, indicating the surplus generated from business activities.

Savings Account

An account for holding deposits at a bank or another financial entity, ensuring the safety of the principal amount while offering a slight interest rate.

Annual Interest

The amount of interest due over the course of a year on borrowed capital or invested funds.