Question

A company using the accrual basis of accounting pays for one year of rent in advance. The entry to record this payment will involve a debit to:

a) Rent Expense
b) Prepaid Rent
c) Deferred Rent Revenue
d) Rent Revenue

Answer 1

The correct answer is b) Prepaid Rent. When a company pays for rent in advance, it is considered a prepaid expense because the payment has been made but the expense has not yet been incurred.

Step-by-step explanation:

The correct answer is b) Prepaid Rent.

When a company pays for rent in advance, it is considered a prepaid expense because the payment has been made but the expense has not yet been incurred. Prepaid rent is an asset on the company's balance sheet and represents the amount paid in advance for future use.

The entry to record this payment involves a debit to the Prepaid Rent account to increase the asset and a credit to the Cash account to decrease the asset. Therefore, the correct entry will involve a debit to Prepaid Rent.