U4, AOS 1 - Prepaid Expenses

Question 1

What are prepaid expenses?

Answer 1

Prepaid expenses are payments made for goods or services that will be received in the future.

Question 2

True or False: Prepaid expenses are recorded as current assets on the balance sheet.

Answer 2

True

Question 3

Give an example of a prepaid expense.

Answer 3

Prepaid insurance is an example of a prepaid expense.

Question 4

Fill in the blank: Prepaid expenses are initially recorded as ______.

Answer 4

assets

Question 5

What happens to prepaid expenses as the service is used?

Answer 5

They are gradually expensed over time.

Question 6

True or False: A prepaid expense can include rent paid in advance.

Answer 6

True

Question 7

Which accounting principle requires the recognition of prepaid expenses?

Answer 7

The matching principle.

Question 8

Multiple Choice: Which of the following is NOT a prepaid expense? A) Prepaid rent B) Prepaid advertising C) Accounts receivable

Answer 8

C) Accounts receivable

Question 9

What is the accounting treatment for prepaid expenses?

Answer 9

They are recorded as assets and then expensed as they are consumed.

Question 10

True or False: Prepaid expenses are always considered long-term assets.

Answer 10

False

Question 11

Short Answer: How do prepaid expenses affect cash flow?

Answer 11

They result in an outflow of cash at the time of payment.

Question 12

What is the journal entry for recording a prepaid expense?

Answer 12

Debit Prepaid Expense account and credit Cash account.

Question 13

Fill in the blank: Prepaid expenses are usually amortized over a ______ period.

Answer 13

specific

Question 14

True or False: All prepaid expenses are considered current assets.

Answer 14

False

Question 15

What type of account is a prepaid expense?

Answer 15

Asset account.

Question 16

Multiple Choice: Which of the following would typically be classified as a prepaid expense? A) Interest payable B) Prepaid subscriptions C) Inventory

Answer 16

B) Prepaid subscriptions

Question 17

True or False: Prepaid expenses are recorded at their full amount when paid.

Answer 17

True

Question 18

Short Answer: Why is it important to track prepaid expenses?

Answer 18

To accurately reflect the company’s financial position and expenses over time.

Question 19

What is the impact of prepaid expenses on net income?

Answer 19

They reduce net income when they are expensed.

Question 20

Fill in the blank: When a prepaid expense is used, it is ______ from the asset account.

Answer 20

credited