Which of the Following Is True Regarding the Adjusting Entry

question 95

Multiple Choice

Which of the following is true regarding the adjusting entry for prepaid insurance?

• A) A liability is recorded.
• B) Prior to adjustment, expenses are overstated and assets are understated.
• C) The adjusting entry results in a debit to an expense account and a credit to an asset account.
• D) None of these answer choices are correct.

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Definitions:

Inventory Valuation

The method used to calculate the cost of goods sold and the ending inventory, factoring in purchases and any changes in costs or quantities.

LIFO

"Last In, First Out," an inventory valuation method where the last items purchased are the first sold.

FIFO

"First-In, First-Out," an inventory valuation method where the costs of the earliest items purchased or produced are the first to be expensed.

Cost Of Goods Available

The total cost of inventory that a company has available to sell at any given time, calculated by adding the beginning inventory to the cost of goods purchased or manufactured.