Question

The reason for recording a prepaid expense as a current asset is?

1) that the prepaid item will be returned for a cash refund.
2) that the prepaid item has not yet become an expense.
3) that the expense has been incurred but not yet paid.
4) to avoid recognizing an expense so net income will be higher for the current accounting period.

Answer 1

Prepaid expenses are recorded as current assets because they have not yet become expenses. Once the expense is incurred, it will be moved from the asset side to the expense side of the balance sheet.

Step-by-step explanation:

The reason for recording a prepaid expense as a current asset is that the prepaid item has not yet become an expense. Prepaid expenses are recorded as current assets because they have not yet become expenses. Once the expense is incurred, it will be moved from the asset side to the expense side of the balance sheet.

When a company pays for a service or product in advance, it is considered a prepaid expense. This means that the company has made a payment for a future expense, and the amount is recorded as an asset on the balance sheet until the expense is incurred.