Prepaid expenses are eventually expected to a. become revenues when services are performed.

Prepaid expenses are eventually expected to

a. become revenues when services are performed.

b. become expenses in the period when they are paid.

c. become revenues when the liability is no longer owed.

d. become expenses when their future economic value expires.

Answer: d. become expenses when their future economic value expires.

Prepaid expenses are expenditures that were paid in advance for assets to be received in the future. These are at first recognized by placing them in the balance sheet as assets as they are future economic returns. This is because, as time goes by and the Company gets the benefits of these items, their value is gradually consumed or “used up” expires. Thus, the prepaid expense is transferred to the income statement as an actual expense. This is referred to as amortization and helps to ensure that expenses stated in the income statement relate to the period in which the benefits from expenses are also stated, hence the matching concept in accounting. Types of expenses that are prepaid may include the following; rent for the coming month for a business premise, insurance cost that has been paid for in advance, or stationery that will be used in the following month among others. Such treatment enhances the presentation of the actual expenses incurred as they relate to the periods benefiting from the expenditures.