If a company pays rent for the next period in advance, what is the effect of the transaction on the accounting equation?
A)Assets decrease, and liabilities decrease.
B)Assets decrease, and owners' equity decrease.
C)Assets increase, and liabilities increase.
D)There is no effect on the accounting equation.

Question

Quizplus · Accepted Answer

Paying rent in advance results in a decrease in cash (an asset) and an increase in prepaid rent (another asset), so the total assets remain unchanged, and there is no effect on liabilities or owners' equity.

If a Company Pays Rent for the Next Period in Advance