Which of the Following Statements Is Correct

question 7

Multiple Choice

Which of the following statements is correct?

• A) A prepayment is shown as a debit on the statement of financial position, as a current asset
• B) A prepayment is shown as a credit on the income statement, reducing the amount of the expense that has already been recorded
• C) When there is an increase in a prepayment, thee amount of the increase is deducted from the expense on the income statement
• D) All of the above statements are correct

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Definitions:

Operating Activities

Daily business functions and transactions related to a company's core business operations, such as sales, provision of services, and purchasing of raw materials.

Expenses

Costs incurred in the process of earning revenue, including operational costs, utilities, salaries, and rent.

Investing Activities

Transactions involving the purchase and sale of long-term assets and other investments, included in a company's cash flow statement.

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents.