Questions: Prepaid accounts are (assets/liabilities) that represent prepayments of future expenses and are increased on the (right/left) side of the accounting equation.

Prepaid accounts are assets that represent prepayments of future expenses and are increased on the left side of the accounting equation.

Explanation:

1. Assets vs. Liabilities: Prepaid accounts are considered assets because they represent future economic benefits that a company will receive. When a company makes a prepayment, such as for rent or insurance, it is essentially paying in advance for a service or benefit it will receive in the future. This prepayment is recorded as an asset on the balance sheet until the service is consumed or the benefit is realized.

2. Left vs. Right Side of the Accounting Equation: In accounting, the left side of the accounting equation represents assets, while the right side represents liabilities and equity. When prepaid accounts are increased, they are recorded on the left side of the equation because they are assets. This is consistent with the double-entry accounting system, where debits (increases in assets) are recorded on the left side.