With the passage of time Through use and consumption b. Adjusting Entries for “Prepaid Expenses” Prepaid Expenses Costs that expire either with the passage of time or through use. (L.O. Expenses are paid in advance are called prepaid expenses or unexpired expenses. • Costs that expire either with the passage of time or through use. Practice questions On July 1, a business paid $22,000 for six months of general liability insurance effective July 1. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a Definition debit to an expense account and a credit to an asset account. 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. 18) Adjusting entries are required A. because some costs expire with the passage of time and have not yet been journalized. Prepaid expenses expire and become expenses with the passage of time, use, or events, for example: prepaid rent, prepaid insurance and deferred taxes. Prepaid expenses become incurred expenses either with the passage of time or through consumption. debit to an Unearned revenues - revenues received in cash and recorded as liabilities before they are earned. Examples of prepaid expenses include annual insurance payments and prepaid rents that expire with time, or office supplies that last for multiple accounting periods and expire by uses. Adjusting entry results in an increase (a debit) to an expense account and a decrease (a credit) to an asset account. Create an account to track the prepaid expense. 57. 4) Prepaid expenses are expenses paid in cash before they are used or consumed. debit to an expense account and a credit to an expense account. PREPAID EXPENSES: Cash payment BEFORE expense is recorded. In the following practice questions, you are asked to make the correct journal entries for prepaid insurance. However, similar to prepaid insurance, the prepaid rent will expire through the passage of time. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a? debit to an expense account and a credit to an asset account. The accounting process under both methods is explained below. What it does simply trades one asset for another asset. debit to an expense account and a credit to an asset account. Can be fulfilled by actions of the organization 7. 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. (1). a. Prepaid expenses expire with the passage of time or through use and consumption. With the passage of time, the benefits of the insurance gradually expire and a portion of the prepaid insurance asset becomes expense. It is not unlikely that some expenses may have been paid in advance. An asset-expense account relationship exists with prepaid expenses. Cost always has two parts one is expired and other on is unexpired. Prepaid Expenses). debit to an asset account and a credit to an expense account.c. Likewise, as an advance payment, prepaid rent doesn’t affect the total assets on the balance sheet. Prepaid Expenses are assets created by the early payment of cash or assuming a liability. debit to an asset account and a credit to an expense account. Expire with the passage of time 2. This preview shows page 15 - 17 out of 55 pages. Costs that expire either with the passage of time or through use. Generally, this is an Other Current Asset account.. 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 are assets that become expenses as they expire or get used up. Prepaid expenses are. Select Lists, and choose Chart of Accounts.Select the plus icon (+) to create a new 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 asset 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 asset account.b. 98. In this case, on 30 September 2020, one month of insurance with the amount of $100 (1,200 / 12) will be expired. accrued expenses). C. when expenses are recorded in the period in which they are incurred. • 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. An adjusting entry. debit to an expense account and a credit to an asset account. The Accounting Information System 57. ; Assign an account number (if used) and name (i.e. ; In the New Account window, from the Type menu, select Other Current Asset. Prepaid or unexpired expenses can be recorded under two methods – asset method and expense method. • Adjusting entry results in an increase (a debit) to an expense account and a decrease (a credit) to an asset account. 2. Rent Supplies a. QuickBooks Desktop for Mac. C. incurred but not yet paid or recorded. Prepaid expenses expire with the passage of time (i. e. rent and insurance) or they are consumed (i. e. supplies). Deferrals 9. These actions by a donor are considered to be As prepaid expenses expire with the passage of time. Prepaid expenses are costs that expire either with the passage of time (e.g., rent and insurance) or through use (e.g., supplies). 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. With the passage of time Through use and consumption b. 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. The expiration of these costs does not require daily entries, which would be impractical and unnecessary. They expire and are charged to expenses based on the passage of time, usage, or other factors. for . D. incurred and already paid or recorded. In other words, prepaid expenses as assets are gradually used up as a business incurs the related expenses over time. So, the company needs to recognize the expiration cost as a rent expense at the end of the period. B. when revenues are recorded in the period in which they are earned. Prepaid expenses are costs that expire with the passage of time (i. e. rent and insurance) or through use (i. e. supplies). Prepaid expenses are costs that expire with the passage of time (i. e. rent and insurance) or through use (i. e. supplies). Accounting process for prepaid or unexpired expenses. What […] Unearned revenues – cash received and recorded as liabilities before the revenue is earned. 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. All Prepaid Expenses could be recorded in a single account or separate accounts could be used for each different type. 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. Prepaids are expenses that are paid in advance, where the expense has not been incurred or used yet. answered Dec 7, 2016 by Shivangi selected Dec 8, 2016 by umar1621 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. Thus, prepaid insurance is the amount expended for an insurance contract that has not yet been used through the passage of the time period stated in the contract. A. prepaid expenses. Prepaid expenses - expenses paid in cash and recorded as assets until they are used or consumed. The original amount of prepaid expenses decreases as portions of the prepaid expenses are charged into actual expenses when incurr… debit to an expense account and a credit to an expense account.d. 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. Prepaid expenses expire either with the passage of time or through use and consumption. D. when the company's profits are below the budget. Prepaid insurance is treated in the accounting records as an asset , which is gradually charged to expense over the period covered by the related insurance contract. 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