Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 21 - No. 10)
What is the impact on the financial statements if a business prepays rent?
Increase assets and decrease equity.
Decrease assets and decrease equity.
Increase assets and increase liabilities.
Decrease assets and increase liabilities.
Explanation
Prepaid rent is an asset. Paying reduces cash (an asset), and recognizing rent as an expense reduces equity (retained earnings).
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