Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

Financial Accounting

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

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Multiple Choice

Which of the following expenditures related to prepaid expenses should be capitalized on the balance sheet?

Monthly utility bill paid in the current month

Payment of one year's rent in advance for office space

Interest expense incurred but not yet paid

Wages paid to employees for work performed this month

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Verified step by step guidance

Understand the concept of prepaid expenses: Prepaid expenses are payments made in advance for goods or services that will be consumed or used in future periods. These are recorded as assets on the balance sheet until the benefit is realized.

Analyze each option to determine whether it qualifies as a prepaid expense: For an expenditure to be capitalized as a prepaid expense, it must provide future economic benefits and not be immediately consumed or incurred.

Option 1: Monthly utility bill paid in the current month - This is an expense incurred for the current period and does not provide future economic benefits. Therefore, it should not be capitalized.

Option 2: Payment of one year's rent in advance for office space - This payment provides future economic benefits as the office space will be used over the next year. It qualifies as a prepaid expense and should be capitalized on the balance sheet.

Option 3: Interest expense incurred but not yet paid and Option 4: Wages paid to employees for work performed this month - Both are expenses related to the current period and do not provide future economic benefits. These should be recorded as expenses in the income statement, not capitalized.