Which of the following is not a reason for recording an adjusting journal entry for prepaid expenses at the end of an accounting period?

• A. To recognize the portion of prepaid expenses that has been used up during the period
• B. To ensure that expenses are matched with the revenues they help generate
• C. To update the balance of prepaid expenses to reflect the remaining asset
• D. To record the initial payment of a prepaid expense

Answer: (D)

Verified step by step guidance

1. Understand the concept of prepaid expenses: Prepaid expenses are payments made in advance for goods or services that will be consumed in future periods. Examples include prepaid rent, insurance, or subscriptions.
2. Recognize the purpose of adjusting journal entries for prepaid expenses: Adjusting entries are made to allocate the portion of the prepaid expense that has been used during the accounting period, ensuring accurate financial reporting.
3. Review the matching principle: The matching principle in accounting states that expenses should be recognized in the same period as the revenues they help generate. Adjusting entries for prepaid expenses ensure compliance with this principle.
4. Analyze the options provided: The first three options describe valid reasons for recording adjusting entries for prepaid expenses, such as recognizing the used portion, matching expenses with revenues, and updating the asset balance.
5. Identify the correct answer: The last option, 'To record the initial payment of a prepaid expense,' is not a reason for an adjusting journal entry. The initial payment is recorded when the transaction occurs, not as part of an adjusting entry.