10) When are prepaid expenses (an asset) recorded? When cash is paid for service

Question

10) When are prepaid expenses (an asset) recorded? When cash is paid for services not yet received. When are the expenses recognized on the income statement? Expenses are recognized on the income statement when services are performed. What is the impact on the Horizontal Equation for recording a Prepaid Expense? AssetsLiabilities Stockholders' Equity Revenues Expenses Cash Income Flow What is the impact on the Horizontal Equation once the prepaid services are performed? Net Cash Assetsbies Stockholders Equity Revenues Expenses Income Flow

Explanation / Answer

recording a prepaid expense

So cash is paid for prepaid expense as both are asset

So asset is increase with prepaid expense and asset is decreased with cash payment

Cash flow Operating activities decrease in cash

2.

When expense is recognized in income statement

Here the prepaid expense is decrease that means cash is decreased

and on other side expense is increased as service is performed

So asset decrease and expense increase and no effect on cash flow as no cash is paid

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