Question

The prepaid expense is shown on the _______ side of the balance sheet.

• A. Assets
• B. Liabilities
• C. Debit
• D. Credit

Answer 1

The correct option is A Assets

There are several items of expense which are paid in advance in the normal course of business operations. At the end of the accounting year, it is found that the benefits of such expense have 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 made by recording he following journal entry:

Prepaid Expense A/c Dr.

To Concerned Expense A/c

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