Which item appears in the assets section of the balance sheet?

Which item appears in the assets section of the balance sheet?

• A. Accounts payable
• B. Prepaid insurance
• C. Common stock
• D. Revenue

Answer: (B)

Prepaid insurance appears in the assets because it represents a future economic benefit the company will receive. When you pay for an insurance policy in advance, you’ve paid for coverage that will provide value over time, so it’s recorded as an asset that will be expensed as the coverage is used. Typically this is a current asset, since it covers a period within a year, though it could be a long-term asset if the policy term is longer than a year. Accounts payable is a liability, reflecting amounts the company owes to others. Common stock is part of owners’ equity, representing the owners’ investment in the company. Revenue is income recognized from operations and is reported on the income statement, not the balance sheet.

Prepaid insurance appears in the assets because it represents a future economic benefit the company will receive. When you pay for an insurance policy in advance, you’ve paid for coverage that will provide value over time, so it’s recorded as an asset that will be expensed as the coverage is used. Typically this is a current asset, since it covers a period within a year, though it could be a long-term asset if the policy term is longer than a year.

Accounts payable is a liability, reflecting amounts the company owes to others. Common stock is part of owners’ equity, representing the owners’ investment in the company. Revenue is income recognized from operations and is reported on the income statement, not the balance sheet.