On September 1, the company pays rent for twelve months in advance and debits an asset account. At year end, the adjusting entry on the work sheet would
A) increase an expense account
B) decrease a liability account
C) increase an asset account
D) decrease an expense account

Question

Quizplus · Accepted Answer

The adjusting entry would increase the Rent Expense account and decrease the Prepaid Rent asset account. This is because, at the start of the year, the company paid rent in advance, so it was recorded as an asset on the balance sheet. However, by the end of the year, a portion of that rent has expired and needs to be recognized as an expense. Therefore, the adjusting entry would increase an expense account (Rent Expense).

On September 1, the Company Pays Rent for Twelve Months