INTERVIEW QUESTIONS COMMON PROFICIENCY TEST (CPT) FUNDAMENTALS OF ACCOUNTING DETAILS

Question: The adjustments to be made for prepaid expenses is:
a) Add prepaid expenses to respective expenses and show it as an asset
b) Deduct prepaid expenses form respective expenses and show it as an asset
c) Add prepaid expenses to respective expenses and show it as a liability
d) Deduct prepaid expenses from respective expenses and show it as a liability

Answer: (b)
Description: Prepaid expense means that expense which has been paid in advance. The journal entry for recording it is:
Prepaid Expense A/C Dr
To Expense A/C
This shows that the amount of prepaid expense is deducted from the relevant expense and it is shown as an asset on the asset side of balance sheet. Prepaid expense is a representative personal account.

(b)
Description: Prepaid expense means that expense which has been paid in advance. The journal entry for recording it is:
Prepaid Expense A/C Dr
To Expense A/C
This shows that the amount of prepaid expense is deducted from the relevant expense and it is shown as an asset on the asset side of balance sheet. Prepaid expense is a representative personal account. Source: CoolInterview.com

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