Basics of Accounting › Elements of Accounting › Question #24244
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QA prepaid expense is:

ID: #24244 Elements of Accounting 54 views
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#24244Q ID
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Elements of AccountingTopic
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  • A an Asset ✔ ✖
  • B Owner’s Equity ✔ ✖
  • C a Liabilit ✔ ✖
Correct Answer: Option 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).

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