Question

multiple select question
select all that apply
which of the following are accurate statements regarding how to report or treat prepaid accounts?

the expired portion of prepaid accounts is reported on the income statement as an expense.

over time, the expired portion of prepaid accounts is transferred from the asset account and reported as an expense.

the expired portion of prepaid accounts is treated as liabilities.

the unexpired portion of prepaid accounts are treated as assets.

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Explanation:

• Prepaid accounts are initially recorded as assets. As time passes, the portion that is used (expired) is reclassified from the asset account to an expense account, which is then reported on the income statement.
• The unexpired, unused portion of prepaid accounts remains a current asset on the balance sheet, as it represents future economic benefit.
• The expired portion is an expense, not a liability, so the third option is incorrect.

Answer:

A. The expired portion of prepaid accounts is reported on the income statement as an expense.
B. Over time, the expired portion of prepaid accounts is transferred from the asset account and reported as an expense.
D. The unexpired portion of prepaid accounts are treated as assets.