When a Prepaid Expense Is Initially Recorded as an Expense

question 43

Multiple Choice

When a prepaid expense is initially recorded as an expense, the adjusting entry has the following effect on net income:

• A)no effect.
• B)decrease.
• C)increase.
• D)Current income is correct but next period's income is incorrect.

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Definitions:

Unusual Item

A nonrecurring or rare event that impacts a company's financial statements, not related to the ordinary activities of the business.

Income Statement

A financial report summarizing the revenues, expenses, and profits over a specified period, usually a fiscal quarter or year.

Disposal of a Segment

The process of eliminating a division, department, or segment of a business through sale, closure, or bankruptcy, impacting financial statements.

Accounting Principle

Guidelines and rules that govern the accounting process, ensuring accuracy and consistency in financial reporting.