What statement and type of account does Prepaid Expense belong to?
Understand the Problem
The question is asking about the classification of the account 'Prepaid Expense' and which financial statement it belongs to. This involves understanding accounting principles, particularly how different types of accounts are categorized in financial reporting.
Answer
Statement of financial position and asset.
The correct statement and type of account for Prepaid Expense is 'Statement of financial position and asset'.
Answer for screen readers
The correct statement and type of account for Prepaid Expense is 'Statement of financial position and asset'.
More Information
Prepaid expenses are initially recorded as current assets because they represent future economic benefits. Over time, as the service or product is received, the prepaid expense is converted into a regular expense on the income statement.
Tips
A common mistake is thinking of prepaid expenses as immediate expenses rather than assets. Always remember they provide future benefits, which is why they're initially considered assets.
Sources
- Prepaid Expense: Definition and Example - Investopedia - investopedia.com
- Prepaid Expenses - Corporate Finance Institute - corporatefinanceinstitute.com
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