Question

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. debit to an asset account and a credit to an expense account.
c. debit to an expense account and a credit to an expense account.
d. debit to an expense account and a credit to an asset account.

Answer 1

Answer:

d. debit to an expense account and a credit to an asset account.

Explanation:

When a prepayment is made, the entries recorded are Debit prepaid expense and credit Cash account to recognize the amount prepaid.

As time passes and the expenses are incurred, the entries required are debit expense account and credit prepaid expense (an asset) with the amount of the expense incurred as a result of the passage of time.