What is an example of a prepaid expense?

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Multiple Choice

What is an example of a prepaid expense?

Explanation:
A prepaid expense is a payment made before the related service or benefit is received, and it is recorded as a current asset until that benefit is used. Insurance and office rent fit this, because paying for a policy or rent in advance creates a prepaid asset (prepaid insurance or prepaid rent) that is gradually expensed over the periods covered by the payment. The other items aren’t prepaid expenses: equipment is a long-term asset acquired for use, accounts receivable is money owed to the company, and marketable securities are investments.

A prepaid expense is a payment made before the related service or benefit is received, and it is recorded as a current asset until that benefit is used. Insurance and office rent fit this, because paying for a policy or rent in advance creates a prepaid asset (prepaid insurance or prepaid rent) that is gradually expensed over the periods covered by the payment. The other items aren’t prepaid expenses: equipment is a long-term asset acquired for use, accounts receivable is money owed to the company, and marketable securities are investments.

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