Under the matching principle, a prepaid expense becomes an expense when the related:
Correct answer: C. Economic benefit is consumed
- A. Cash is deposited
- B. Invoice is approved
- C. Economic benefit is consumed
- D. Supplier is selected
Explanation
A prepayment represents a future economic benefit, so it remains an asset until that benefit is used. The expense is then recognized in the period receiving the benefit.
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
Cash received from a customer before the related service is provided is normally recorded as a:
Under accrual accounting, revenue is generally recognized when it is:
A provision differs from an ordinary trade payable mainly because the provision has greater uncertainty about its:
Immediately after a business pays an amount for a future service, with no part of the service yet received, what is the usual effect on total assets?
Under IAS 37, a provision is generally not recognized for expected future operating losses because they:
A restructuring provision is normally recognized only when the entity has a detailed formal plan and has: