Question

Despite the use of the accrual method, prepaid ____ and prepaid ____ are taxed immediately upon receipt.

Answer 1

Prepaid expenses such as prepaid rent and prepaid insurance are exceptions to the accrual method and are taxed immediately upon receipt.

Step-by-step explanation:

Prepaid expenses such as prepaid rent and prepaid insurance are taxed immediately upon receipt, despite using the accrual method. The accrual method recognizes revenue and expenses when they are earned or incurred, regardless of when the cash is actually received or paid. However, certain prepaid expenses are exceptions to this rule and are taxed immediately upon receipt.