CAF-8 · Chapter 9 · Question 9 of 10
When auditing prepayments, the auditor should review the insurance premium paid during the year. If a 12-month policy was paid 3 months before year-end, how much should be recorded as a prepayment?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 9 months' worth of the premium.
Explanation
A prepayment represents the portion of an expense that relates to a future period. Since 3 months have passed, 9 months are still 'prepaid'.
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