The latte factor illustrates how ____.

• A. adjusting journal entries are unnecessary for minor expenses
• B. large, one-time purchases are the main cause of financial problems
• C. prepaid expenses are always recorded as liabilities
• D. small, regular expenses can accumulate into significant amounts over time

Answer: (D)

Verified step by step guidance

1. Understand the concept of the 'latte factor,' which refers to the idea that small, regular expenses, such as daily coffee purchases, can accumulate into significant amounts over time and impact financial well-being.
2. Recognize that this concept emphasizes the importance of tracking and managing minor, recurring expenses to avoid financial strain.
3. Note that the 'latte factor' does not relate to adjusting journal entries, large one-time purchases, or prepaid expenses being recorded as liabilities. These are unrelated accounting concepts.
4. Apply this understanding to personal finance or budgeting scenarios, where identifying and reducing small, habitual expenses can lead to substantial savings over time.
5. Use this principle to encourage better financial habits, such as creating a budget and prioritizing savings, to achieve long-term financial goals.