A prepaid expense is

Question

BlackTom AI · Accepted Answer

Consider what a prepaid expense represents in accounting terms. 
Option a: 'an expense paid in advance but not yet consumed' correctly describes a prepaid expense. It is an asset recorded when cash is paid before the related benefit is consumed or used up, such as paying for insurance or rent in advance. The asset will be expensed over time as the benefit is received. 
Option b: 'a liability that has not yet been paid' would describe an accrued expense or a payable, where the obligation exists but cash has not yet been disbursed; a prepaid expense is not a liability, it’s an asset until the benefit is consumed, at which point it becomes an expense. 
Option c: 'an expense that has been consumed and paid for' would mean the cost has already been recognized as an expense, which is the opposite of a prepaid asset. A prepaid is recognized as an asset until the service or benefit is used; once used, it becomes an expense. 
Option d: 'an expense consumed but not yet paid' resembles an accrued expense, where you have incurred the expense but haven’t paid for it yet. A prepaid expense, by contrast, involves payment in advance, so this option mischaracterizes the timing and nature of the transaction. 
In summary, the defining feature of a prepaid expense is payment made ahead of time for a benefit that will be consumed in the future, aligning with option a. The other options mix up the timing (prepaid vs. accrued) or the nature (asset vs. expense) of the account involved.

MUF0022 Accounting Unit 2 - Semester 2, 2025 Quiz: BDA: Expenses

A prepaid expense is

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