Question

Does prepaid expenses effects the total of accounting equation? If yes, which accounts.

• A. Yes, Assets & Liability
• B. Yes, Assets & Capital
• C. Yes, Liabilities & Capital
• D. No

Answer 1

The correct option is D

No

Prepaid expenses are a type of assets for business. You can think of prepaid expenses as costs that have been paid but have not yet been used up or have not yet expired. The amount of prepaid expenses that have not yet expired are reported on a company's balance sheet as an asset. Its only a conversion of cash into another asset but does not effect the total of accounting equation.