If a Company Records Prepayment of Expenses in an Asset

question 107

Multiple Choice

If a company records prepayment of expenses in an asset account,the adjusting entry when all or part of the prepaid asset is used or expired would:

• A)Result in a debit to an expense and a credit to an asset account.
• B)Cause an adjustment to prior expense to be overstated and assets to be understated.
• C)Cause an accrued liability account to exist.
• D)Result in a debit to a liability and a credit to an asset account.
• E)Decrease cash.

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Definitions:

JIT

Just-In-Time, a management strategy that aligns raw-material orders from suppliers directly with production schedules to improve efficiency and decrease waste.

Credit Policy Variable

An element that defines the guidelines under which credit is extended to customers, including terms of payment and interest rates.

Credit Period

The duration of time a buyer is allowed to pay for goods or services received, before interest or penalties begin accruing.

Collection Policy

The specific strategies and methods a company uses to manage the collection of its accounts receivable.