Question

A prepayment that is originally recorded as an asset will be ______. allocated to future accounting periods equally over the periods receiving the benefit expensed in total at the end of the accounting period allocated to future accounting periods based on the cost of the asset used during the period transferred to a liability account at the end of the accounting period

Answer 1

Allocated to future accounting periods based on the value of the benefit used during the period.

Step-by-step explanation:

In a pre-payment. you already make the payment for a certain goods or services before you actually use them.

In most cases, the value of prepaid goods or services tend to be decreased as the time goes by , so you need to make adjustment based on the value of the benefit.

For example, Let's say that on June you purchase a prepaid insurance for 1 year, costing you $1,200. At the end of the year, you need to adjust the value and cut it in half since you've been using half of the benefit (6 months between june-December)