Prepaid accounts, also called prepaid expenses, are:

• A. liabilities that represent amounts owed to suppliers for goods or services already received
• B. expenses that have been incurred but not yet paid or recorded
• C. assets that represent payments made in advance for goods or services to be received in the future
• D. revenues earned but not yet received in cash or recorded

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of prepaid accounts (prepaid expenses). These are payments made in advance for goods or services that will be received in the future. They are recorded as assets because they provide future economic benefits.
2. Step 2: Differentiate prepaid accounts from liabilities. Liabilities represent amounts owed to suppliers for goods or services already received, whereas prepaid accounts represent payments made in advance for future goods or services.
3. Step 3: Differentiate prepaid accounts from expenses. Expenses are costs incurred during a specific period, whereas prepaid accounts are payments made in advance and are not yet recognized as expenses until the goods or services are received.
4. Step 4: Differentiate prepaid accounts from revenues. Revenues are earnings from goods or services provided, whereas prepaid accounts are payments made in advance for goods or services to be received in the future.
5. Step 5: Conclude that prepaid accounts are classified as assets because they represent payments made in advance for goods or services that will provide future economic benefits.