PRC-1 · Chapter 4 · Question 84 of 100
A business recorded Rs. 10,000 paid for next year's operational license as an expense in the current year. What adjusting journal entry is required at year-end?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Debit Prepaid License Rs. 10,000; Credit Expense Rs. 10,000
Explanation
Because the license is for next year, it is a prepaid asset. The adjusting entry must remove the 10k from the expense account (Credit) and set up the asset (Debit Prepaid).
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