debit to an Create an account to track the prepaid expense. In other words, prepaid expenses as assets are gradually used up as a business incurs the related expenses over time. debit to an asset account and a credit to an expense account. An asset-expense account relationship exists with prepaid expenses. Each month, an adjusting entry will be made to expense $10,000 (1/12 of the prepaid amount) to the income statement through a credit to prepaid insurance and a debit to insurance expense. The original amount of prepaid expenses decreases as portions of the prepaid expenses are charged into actual expenses when incurr… Prepaid expenses are costs that expire either with the passage of time (e.g., rent and insurance) or through use (e.g., supplies). ; Assign an account number (if used) and name (i.e. The expiration of these costs does not require daily entries, which would be impractical and unnecessary. Generally, this is an Other Current Asset account.. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a: debit to an asset account and a credit to an expense account. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a (a) debit to an asset account and a credit to an expense account. Prepaid expenses are. debit to an expense account and a credit to an expense account.d. 18) Adjusting entries are required A. because some costs expire with the passage of time and have not yet been journalized. debit to an asset account and a credit to an asset account. It is not unlikely that some expenses may have been paid in advance. As prepaid insurance is an asset that will expire through the passage of time, the cost of expiration will need to be recognized as an expense during the period. B. when revenues are recorded in the period in which they are earned. Rent Supplies a. With the passage of time, the benefits of the insurance gradually expire and a portion of the prepaid insurance asset becomes expense. Definitions Permanently Restricted Net Assets represent those net assets that a donor has instructed the organization to maintain in perpetuity. Prepaid expenses expire and become expenses with the passage of time, use, or events, for example: prepaid rent, prepaid insurance and deferred taxes. Rent Supplies Through use and consumption Through use and consumption With the passage of time With the passage of time Through use and consumption O With the passage of time Through use and consumption With the passage of time debit to an expense account and a credit to an asset account. Prepaid expenses expire with the passage of time or through use and consumption, e.g., insurance, supplies. For example, office supplies are considered an asset until they are used in the course of doing business, at which time they become an expense. What […] With the passage of time Through use and consumption b. With the passage of time Through use and consumption b. With the passage of time With the passage of time c. Through use and consumption Through use and consumption d. Through use and consumption With the passage of time 58. Prepaid Expenses). They expire and are charged to expenses based on the passage of time, usage, or other factors. In the following practice questions, you are asked to make the correct journal entries for prepaid insurance. Adjusting Entries for “Prepaid Expenses” Prepaid Expenses Costs that expire either with the passage of time or through use. PREPAID EXPENSES: Cash payment BEFORE expense is recorded. For instance, one month’s insurance coverage expires by December 31, 2015. Prepaid expenses expire with the passage of time (i. e. rent and insurance) or they are consumed (i. e. supplies). • Prepaid expenses – expenses paid in cash and recorded as assets before they are used or consumed – Prepaid expenses expire with the passage of time or through use and consumption • An asset-expense account relationship exists with prepaid expenses PREPAID EXPENSES 16. • Costs that expire either with the passage of time or through use. accrued expenses). A. Likewise, as an advance payment, prepaid rent doesn’t affect the total assets on the balance sheet. D. incurred and already paid or recorded. How do these prepaid expenses expire? (This means that the Prepaid Insurance account should have a balance of $2,200—11 months still prepaid or unexpired X … Costs that expire either with the passage of time or through use. a. Prepaid expenses expire with the passage of time or through use and consumption. Asset method. When companies purchase prepaid expenses, they debit prepaid expense and credit cash. Select one: True False Equity is increased by owner investments, net income and withdrawals. How do these prepaid expenses expire? B. paid and recorded in an asset account after they are used or consumed. As of December 31 one month has gone by, so one month of insurance has expired and belongs in expense. answered Dec 7, 2016 by Shivangi selected Dec 8, 2016 by umar1621 Prepaid expenses are assets that become expenses as they expire or get used up. At the end of each accounting period, adjusting entries are necessary to recognize the portion of prepaid expenses that have become actual expenses through use or the passage of time. Prepaid or unexpired expenses can be recorded under two methods – asset method and expense method. PREPAID EXPENSES: Cash payment BEFORE expense is recorded. (L.O. 4) Prepaid expenses are expenses paid in cash before they are used or consumed. A. paid and recorded in an asset account before they are used or consumed. The accounting process under both methods is explained below. This preview shows page 15 - 17 out of 55 pages. So, the company needs to recognize the expiration cost as a rent expense at the end of the period. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a debit to an asset account and a credit to an asset account. Prepaid Expenses are assets created by the early payment of cash or assuming a liability. Can be fulfilled by actions of the organization 7. Expenses are paid in advance are called prepaid expenses or unexpired expenses. How do these prepaid expenses expire? As prepaid expenses expire with the passage of time, the correct adjusting entry will be a? Prepaid expenses - expenses paid in cash and recorded as assets until they are used or consumed. b. Before prepaid expenses are consumed, businesses consider them assets that can provide future benefits. Prepaid expenses expire either with the passage of time or through use and consumption. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a Favorite Answer. Adjusting entries (1) to record the expenses that apply to the current accounting period, and (2) to show the unexpired costs in the asset accounts. However, similar to prepaid insurance, the prepaid rent will expire through the passage of time. Practice questions On July 1, a business paid $22,000 for six months of general liability insurance effective July 1. Select Lists, and choose Chart of Accounts.Select the plus icon (+) to create a new account. ; In the New Account window, from the Type menu, select Other Current Asset. C. incurred but not yet paid or recorded. Expire with the passage of time 2. The Accounting Information System 57. Unearned revenues – cash received and recorded as liabilities before the revenue is earned. This expense is $100 or 1/24th of $2,400, which leaves $2,300. 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