With prepaid supplies, what is true regarding the timing of cash payments?

With prepaid supplies, what is true regarding the timing of cash payments?

• A. True
• B. False

Answer: (A)

When dealing with prepaid supplies, the key aspect is that these payments are made in advance for goods or services that have not yet been received or consumed. This means that when a company pays cash for supplies before actually using them, it recognizes an asset on its balance sheet rather than an expense on the income statement at the time of payment. The timing of the cash payment is crucial; it occurs before the supplies are utilized, indicating a future benefit to the company. This concept reflects proper accrual accounting practices, where expenses are recorded when they are incurred, rather than when cash is paid. Therefore, stating that the timing of cash payments for prepaid supplies is true aligns with the principles of recognizing an asset before it is converted to an expense.

When dealing with prepaid supplies, the key aspect is that these payments are made in advance for goods or services that have not yet been received or consumed. This means that when a company pays cash for supplies before actually using them, it recognizes an asset on its balance sheet rather than an expense on the income statement at the time of payment. The timing of the cash payment is crucial; it occurs before the supplies are utilized, indicating a future benefit to the company. This concept reflects proper accrual accounting practices, where expenses are recorded when they are incurred, rather than when cash is paid. Therefore, stating that the timing of cash payments for prepaid supplies is true aligns with the principles of recognizing an asset before it is converted to an expense.