Question

Prepaid expense is treated as __________.

• A. current asset
• B. current liability
• C. short-term liability
• D. none of the above

Answer 1

The correct option is A current asset

This may happen some time the expenses are paid in advance. The expenses which are paid in current year but belongs to some period beyond the current financial year. These are called prepaid expenses.

Accounting entry will be as under:

Prepaid Expenses A/c Dr.

To Expenses A/c

Prepaid expense are deducted from the respective expenses account and shown as current assets in the balance sheet.