B. when revenues are recorded in the period in which they are earned. However, similar to prepaid insurance, the prepaid rent will expire through the passage of time. a. Prepaid expenses expire with the passage of time or through use and consumption. How do these prepaid expenses expire? Prepaid expenses expire with the passage of time or through use and consumption, e.g., insurance, supplies. Costs that expire either with the passage of time or through use. Rent Supplies a. 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. In this case, on 30 September 2020, one month of insurance with the amount of $100 (1,200 / 12) will be expired. An asset-expense account relationship exists with prepaid expenses. Prepaid or unexpired expenses can be recorded under two methods – asset method and expense method. When companies purchase prepaid expenses, they debit prepaid expense and credit cash. Unearned revenues - revenues received in cash and recorded as liabilities before they are earned. Generally, this is an Other Current Asset account.. debit to an expense account and a credit to an expense account. Can be fulfilled by actions of the organization 7. Prepaid Expenses are assets created by the early payment of cash or assuming a liability. Before prepaid expenses are consumed, businesses consider them assets that can provide future benefits. 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. 98. It is not unlikely that some expenses may have been paid in advance. 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. debit to an expense account and a credit to an expense account.d. How do these prepaid expenses expire? D. incurred and already paid or recorded. With the passage of time, the benefits of the insurance gradually expire and a portion of the prepaid insurance asset becomes 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. This expense is $100 or 1/24th of $2,400, which leaves $2,300. 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. So, the company needs to recognize the expiration cost as a rent expense at the end of the period. C. when expenses are recorded in the period in which they are incurred. The original amount of prepaid expenses decreases as portions of the prepaid expenses are charged into actual expenses when incurr… • 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. Cost always has two parts one is expired and other on is unexpired. An adjusting entry. The Accounting Information System 57. As prepaid expenses expire with the passage of time. 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. 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. Prepaid expenses are costs that expire with the passage of time (i. e. rent and insurance) or through use (i. e. supplies). The expiration of these costs does not require daily entries, which would be impractical and unnecessary. Prepaid expenses expire either with the passage of time or through use and consumption. 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. 4) Prepaid expenses are expenses paid in cash before they are used or consumed. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a What […] A. for . Prepaid Expenses). All Prepaid Expenses could be recorded in a single account or separate accounts could be used for each different type. Prepaid expenses expire and become expenses with the passage of time, use, or events, for example: prepaid rent, prepaid insurance and deferred taxes. 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. Prepaid expenses become incurred expenses either with the passage of time or through consumption. The accounting process under both methods is explained below. debit to an expense account and a credit to an asset account. Deferrals 9. accrued expenses). ; In the New Account window, from the Type menu, select Other Current Asset. Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for 59. 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. Prepaid Expenses are assets created by the early payment of cash or assuming a liability. 2. C. incurred but not yet paid or recorded. 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. 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. 57. • Costs that expire either with the passage of time or through use. Prepaid expenses expire with the passage of time (i. e. rent and insurance) or they are consumed (i. e. supplies). A. paid and recorded in an asset account before they are used or consumed. They expire and are charged to expenses based on the passage of time, usage, or other factors. Likewise, as an advance payment, prepaid rent doesn’t affect the total assets on the balance sheet. In the following practice questions, you are asked to make the correct journal entries for prepaid insurance. Select Lists, and choose Chart of Accounts.Select the plus icon (+) to create a new account. Practice questions On July 1, a business paid $22,000 for six months of general liability insurance effective July 1. debit to an expense account and a credit to an expense account. B. paid and recorded in an asset account after they are used or consumed. debit to an expense account and a credit to an asset account. debit to an Select one: True False Equity is increased by owner investments, net income and withdrawals. • Adjusting entry results in an increase (a debit) to an expense account and a decrease (a credit) to an asset account. They expire and are charged to expenses based on the passage of time, usage, or other factors. For instance, one month’s insurance coverage expires by December 31, 2015. debit to an asset account and a credit to an expense account. debit to an asset account and a credit to an expense account.c. Definitions Permanently Restricted Net Assets represent those net assets that a donor has instructed the organization to maintain in perpetuity. prepaid expenses. In other words, prepaid expenses as assets are gradually used up as a business incurs the related expenses over time. (L.O. D. when the company's profits are below the budget. All Prepaid Expenses could be recorded in a single account or separate accounts could be used for each different type. Prepaid expenses are assets that become expenses as they expire or get used up. Unearned revenues – cash received and recorded as liabilities before the revenue is earned. Create an account to track the prepaid expense. debit to an expense account and a credit to an asset account. PREPAID EXPENSES: Cash payment BEFORE expense is recorded. (1). Prepaid expenses are costs that expire with the passage of time (i. e. rent and insurance) or through use (i. e. supplies). 18) Adjusting entries are required A. because some costs expire with the passage of time and have not yet been journalized. $2,400 divided by the 12 months of coverage = $200 per month. What it does simply trades one asset for another asset. 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. (This means that the Prepaid Insurance account should have a balance of $2,200—11 months still prepaid or unexpired X … 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. Accounting process for prepaid or unexpired expenses. Adjusting Entries for “Prepaid Expenses” Prepaid Expenses Costs that expire either with the passage of time or through use. Prepaid expenses are costs that expire either with the passage of time (e.g., rent and insurance) or through use (e.g., supplies). Prepaid expenses are. Asset method. This preview shows page 15 - 17 out of 55 pages. PREPAID EXPENSES: Cash payment BEFORE expense is recorded. Prepaid expenses - expenses paid in cash and recorded as assets until 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. QuickBooks Desktop for Mac. How do these prepaid expenses expire? Expire with the passage of time 2. These actions by a donor are considered to be With the passage of time Through use and consumption b. Expenses are paid in advance are called prepaid expenses or unexpired expenses. Favorite Answer. b. With the passage of time Through use and consumption b. 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 Prepaids are expenses that are paid in advance, where the expense has not been incurred or used yet. ; Assign an account number (if used) and name (i.e. Adjusting entry results in an increase (a debit) to an expense account and a decrease (a credit) to an asset account. answered Dec 7, 2016 by Shivangi selected Dec 8, 2016 by umar1621 In other words, prepaid expenses are expenditures paid in one accounting period Fiscal Year (FY) A fiscal year (FY) is a 12-month or 52-week period of time used by governments and businesses for accounting purposes to formulate annual, but will not be recognized until a later accounting 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. 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