Which journal entry correctly records the payment of an expense in advance?
Correct answer: C. Debit prepaid expense and credit cash
- A. Debit expense and credit cash
- B. Debit cash and credit expense
- C. Debit prepaid expense and credit cash
- D. Debit cash and credit prepaid expense
Explanation
The payment creates a prepaid expense asset because the service has not yet been consumed. The correct entry debits prepaid expense and credits cash. The expense is recognized later as the benefit is received.
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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.
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