The adjustment to be made for prepaid expenses is____________?
ADeduct prepaid expenses from respective expenses and show it as an asset
BDeduct prepaid expenses from respective expenses and show it as a liability
CAdd prepaid expenses to respective expenses and show it as an asset
DAdd prepaid expenses to respective expenses and show it as a liability
Correct answer
A. Deduct prepaid expenses from respective expenses and show it as an asset
Explanation
Prepaid expense is an expense relating to the next accounting period but has been paid in the current accounting period and hence it is a current asset. The adjustment would be to deduct it from the respective expense account in the P&L A/c and show it as a current asset in the Balance Sheet.