Prepaid Expenses

CFA Level I FRA
#1

I am trying to understand the Professor’s Note on Kaplan book on page 59, Book 3. Can someone explain how prepaid expenses work? In my mind, when the 1Q rent is used and the prepaid expense reduces, another item on Assets should increase or one item in Liabilities should also reduce. Can someone help please?

#2

Rent Expense increases; thus, ultimately, shareholders’ equity will decrease.

#3

Thanks a lot!

#4

My pleasure.