Final answer:
To set up a monthly recurring prepaid expense, an accountant should use a Recurring Journal Entry, which allows for correct monthly allocation of the prepaid cost.
Other options like Recurring Sales Receipt or Invoice relate to revenues, and a Recurring Purchase Order does not affect the expense accounts directly.
Step-by-step explanation:
The appropriate recurring transaction for an accountant to set up a monthly recurring prepaid expense is Option 3: Recurring Journal Entry. Prepaid expenses are assets that are paid for and recorded .
To account for these expenses, a journal entry is necessary each month to allocate the expense to the appropriate period.
For example, if a company pays an annual insurance premium upfront, this payment is considered a prepaid expense. Each month, the accountant would make a recurring journal entry that debits .
The insurance expense account and credits the prepaid insurance account to reflect the portion of the premium that applies to that month.
This practice ensures that the expense is matched with the revenue of the period in which it is incurred, adhering to the matching principle in accounting.
Recurring Sales Receipt and Recurring Invoice apply to revenue transactions rather than expenses. A Recurring Purchase Order is used for repetitive orders of the same goods but does not recognize.