The Alternative Method of Accounting for Prepayments

question 85

Multiple Choice

The alternative method of accounting for prepayments

• A)Initially records all prepaid expenses with debits to expense accounts.
• B)Initially records all prepaid expenses with credits to expense accounts.
• C)Requires an adjusting entry because expenses are understated.
• D)Requires an adjusting entry if the prepaid is consumed during the period.
• E)Requires an adjusting entry because net income is understated.

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Definitions:

Multiple Endorsements

Refers to the practice in banking and finance where a document, such as a check, is signed over to another party multiple times.

Liable

Being legally responsible for something, typically referring to obligations in law.

Primary Liability

The direct and immediate responsibility to fulfill an obligation or repay a debt, without necessarily having recourse against others for reimbursement.

Secondary Liability

Secondary Liability refers to the legal responsibility of a third-party for the actions of another, such as a parent company being liable for the actions of its subsidiary.