If a Company Records Prepayment of Expenses in an Asset

question 207

Multiple Choice

If a company records prepayment of expenses in an asset account, the adjusting entry 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:

Cash Management

The strategy for managing a company's or an individual's financial operations, such as collecting, investing, and managing cash and liquid assets.

Outsourcing

The practice of purchasing components rather than making them in-house.

Intermediate Components

Components or parts used in the production process that are not final products but are incorporated into other goods.

Inventory Management Systems

Technologies and strategies used to oversee the ordering, storing, and use of a company’s inventory.