Which Of The Following Statements Is Correct About Prepaid Expenses?
In this multiple choice question, the true statement about “ Prepaid Expenses (PE) ” is option (B), as PE are also called prepaid accounts and are considered as Current Assets to be shown on the assets side of balance sheet. Prepaid means payment made in advance against which the services not yet received. For example, if the prepaid phone card is purchased then the payment is made in advance but the phone card is still not used i.e., no phone call is made so no benefit is received during the period. As the probable benefits will be received in near future so it is considered as Current Asset from the points view of the business. Other examples of PE include Prepaid Rent, Salary, etc. PE are also known as unexpired assets as these are not consumed and their benefits are not yet enjoyed by the business during the current accounting period. The option (B) is incorrect choice as PE are not prepaid liabilities and categorized as liabilities. The option (C) is also wrong choice here a...