In accounting, what is the outcome when a journal entry reflects a prepaid expense?

When a journal entry reflects a prepaid expense, it indicates that a company has paid for an expense in advance before it has been incurred. This transaction results in a decrease in actual revenue because the expense is recognized before the associated economic benefit is realized. The prepaid expense is recorded as an asset on the balance sheet, reflecting the future economic benefits that the company will receive from this payment.

This recognition does not affect cash flow immediately since cash has already been paid out, but it impacts the income statement when the expense is eventually recognized, leading to a reduction in net revenue. By aligning the expense with the period in which the related benefits are realized, the company adheres to the accrual basis of accounting, which mandates that expenses must be matched to revenues.

The other options are not relevant in this context. An increase in revenue would only occur when goods or services are provided, not when payment is made in advance. There is also a notable effect on the Trial Balance, as prepaid expenses appear as assets, and cash is credited, thus showing that the transaction does indeed affect the Trial Balance. Lastly, while the cash flow may have an immediate decrease due to the payment, it does not constitute an "increase in cash flow," as cash is exchanged for the