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The adjustments to be made for prepaid expenses is:
- a)Add prepaid expenses to respective expenses and show it as an asset
- b)Deduct prepaid expenses form respective expanses and show it as an asset
- c)Add prepaid expenses to respective expenses and show it as a liability
- d)Deduct prepaid expenses form respective and show it as a liability
Correct answer is option 'B'. Can you explain this answer?
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The adjustments to be made for prepaid expenses is:a)Add prepaid expen...
Adjustments for Prepaid Expenses
Prepaid expenses refer to expenses that have been paid in advance but the benefits of which are yet to be realized. Thus, at the end of an accounting period, adjustments need to be made to account for these expenses.
The adjustments to be made for prepaid expenses are as follows:
Deduct Prepaid Expenses from Respective Expenses
The adjustment for prepaid expenses involves deducting the prepaid amount from the respective expenses and showing it as an asset. This adjustment is necessary because the amount of the prepaid expense has already been paid, and it is not an expense that needs to be recognized in the current period.
For example, if a company has paid $12,000 for rent for the next 12 months in advance, this amount will be recorded as a prepaid rent expense. At the end of each month, the company will deduct $1,000 (the amount of rent for that month) from the prepaid rent expense and show it as an asset.
This adjustment is made to ensure that the expenses are accurately reflected in the financial statements, and it also helps in determining the true profitability of the business.
Conclusion
In conclusion, the adjustment for prepaid expenses involves deducting the prepaid amount from the respective expenses and showing it as an asset. This adjustment helps in accurately reflecting the expenses in the financial statements and determining the true profitability of the business.
Prepaid expenses refer to expenses that have been paid in advance but the benefits of which are yet to be realized. Thus, at the end of an accounting period, adjustments need to be made to account for these expenses.
The adjustments to be made for prepaid expenses are as follows:
Deduct Prepaid Expenses from Respective Expenses
The adjustment for prepaid expenses involves deducting the prepaid amount from the respective expenses and showing it as an asset. This adjustment is necessary because the amount of the prepaid expense has already been paid, and it is not an expense that needs to be recognized in the current period.
For example, if a company has paid $12,000 for rent for the next 12 months in advance, this amount will be recorded as a prepaid rent expense. At the end of each month, the company will deduct $1,000 (the amount of rent for that month) from the prepaid rent expense and show it as an asset.
This adjustment is made to ensure that the expenses are accurately reflected in the financial statements, and it also helps in determining the true profitability of the business.
Conclusion
In conclusion, the adjustment for prepaid expenses involves deducting the prepaid amount from the respective expenses and showing it as an asset. This adjustment helps in accurately reflecting the expenses in the financial statements and determining the true profitability of the business.
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The adjustments to be made for prepaid expenses is:a)Add prepaid expen...
*prepaid expenses are deducted because expenses have been paid and these reduces expenses *expenses outstanding are treated as liability and prepaid expenses will be treated as asset
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The adjustments to be made for prepaid expenses is:a)Add prepaid expenses to respective expenses and show it as an assetb)Deduct prepaid expenses form respective expanses and show it as an assetc)Add prepaid expenses to respective expenses and show it as a liabilityd)Deduct prepaid expenses form respective and show it as a liabilityCorrect answer is option 'B'. Can you explain this answer?
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