Can anyone help me with this accounting question?

Question

Which of the following is an example of a prepaid expense?

A. Supplies
B. Accounts Receivable
C. Unearned Subscriptions
D. Unearned Fees

Answer 1

Supplies are a prepaid expense. You paid for them and they are an ordinary business expense, but the supply cabinet is full and they haven't been used yet!

We tend to let supplies stay as an expense rather than capitalize them because the amount of the expense isn't material and the trouble of arriving at a fair value of the inventory of supplies is too costly in relationship to the small dollar value of them.

Furthermore, expensing the supplies immediately takes into account all costs first, which is consistent with the accounting principle of conservatism.

Answer 2

looks like we are answering all your accounting homework questions tonight...it is going to be very important that you know this stuff when you get into journal entries!

Unearned subscriptions and fees are monies that have been paid to you that you haven't earned yet...you would have to pay them back if you don't earn them...so they are a liability.

Accounts Receivable is that accrued revenue we were talking about in another question...you have given the goods or done the work and waiting to be paid ( you have billed them).

So that leaves supplies. While this is an asset and can be considered a "prepaid" asset - people usually just call it a current asset of supplies and expense it as an ongoing consumable.
So you would debit supplies and credit cash or accounts payable. A more usual prepaid expense is insurance or annual fees you pay for in advance.

Answer 3

Supplies. this seems way too easy. I'm sure that isn't right.

Answer 4

I dont know!