A prepaid expense is normally shown in the statement of financial position as which type of item?
Correct answer: A. A current asset representing future benefit
- A. A current asset representing future benefit
- B. A current liability representing future payment
- C. An expense representing current consumption
- D. A provision representing an uncertain obligation
Explanation
A prepaid expense is a payment made before the related benefit is consumed, so it represents a future economic benefit. It is therefore recorded as an asset until the benefit is used. A provision relates to an uncertain obligation, not an advance payment.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? support@testustad.com
About Accruals, Prepayments and Provisions
Accruals and prepayments adjust income and expenses to the accounting period in which they are earned or incurred, following the matching principle. Provisions recognise expected obligations or losses when their amount or timing is uncertain, which distinguishes them from ordinary accruals and from general reserves.
Practise Accruals, Prepayments and Provisions
34 free Accruals, Prepayments and Provisions MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Exams that ask Accounting questions like this
Accounting is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Accruals, Prepayments and Provisions questions
Trade receivables are Rs 500,000, and the required allowance for doubtful debts is 5%. An existing allowance has a credit balance of Rs 15,000. What adjustment is required?
When a provision for product warranties is recognized before any warranty claim is paid, what is the immediate effect?
A rent payment of Rs 120,000 covers 12 months from 1 October. What amount is treated as rent expense for the year ending 31 December?
Which journal entry correctly records the payment of an expense in advance?
At the end of an accounting period, an accrued expense is best described as an expense that is:
A company estimates that Rs 90,000 will be required to settle a present warranty obligation. Which entry records the provision?