Question

The amount of prepaid expense is ________ from the total of the particular expense.

• A. added
• B. deducted
• C. neutralized
• D. None of the Above

Answer 1

Answer: (B)

deducted

There are several items of expense which are paid in advance in the normal course of business operations. At the end of the accounting period, it is found that the benefits of such expense are not yet been fully received; a portion of its benefit would be received in the next accounting year. This portion of expense, is carried forward to the next year and is termed as prepaid expenses. The necessary adjustment in respect of prepaid expenses is:

Prepaid expense A/c Dr.

To Concerned expense A/c

The effect of the above adjustment entry is that the amount of prepaid part is deducted from the total of the particular expense, and the new account of prepaid expense is shown on the liabilities side of the balance sheet.