Q: A prepaid expense is:

A an Asset
B Owner’s Equity
C a Liabilit

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Answer: A

Explanation:

The correct answer is:

A. an Asset ✅

👉 Explanation:

A prepaid expense is something a business pays for in advance (like insurance, rent, or subscriptions) but will receive the benefit of in the future.
Since it represents a future economic benefit, it is recorded as a Current Asset on the Balance Sheet.
It is not Owner’s Equity (which represents the owner’s investment) and not a Liability (which is an obligation).

💡 Example: If a company pays ₹12,000 for a 1-year insurance policy in January, the unused portion (say 11 months) is recorded as Prepaid Expense (Asset).

Elements of Accounting

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