PRC-1 · Chapter 4 · Question 29 of 100
When an entity initially records all insurance payments as an expense during the year, the necessary year-end adjusting entry for the unexpired (prepaid) portion will have what specific effect?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Decrease total expenses and increase current assets
Explanation
By moving the unexpired portion from the expense account to a prepaid asset account, the adjusting entry decreases the recorded expense and increases current assets.
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