Final answer:
The statement is true; a portion of a prepaid expense is recorded as an expense via an adjusting entry as it is used up.
Step-by-step explanation:
The statement is true. When a prepayment is made for an expense, it is initially recorded as an asset on the balance sheet because it represents a future economic benefit. However, as the benefit is consumed - for instance, as time passes in the case of prepaid rent or insurance - that portion of the asset is recognized as an expense. This is done through an adjusting entry that decreases the prepaid expense asset account and increases the corresponding expense account on the income statement.
For example, if a company pays $12,000 at the beginning of the year for an insurance policy that covers the entire year, each month the company will make an adjusting entry to expense $1,000, reducing the prepaid insurance account by that portion and recognizing the insurance expense for that period.