In October,your company prepays rent of $7,000 for November and December.Which of the following describes the effects of this transaction on your company in October?
A)Assets decrease $7,000 and liabilities decrease $7,000.
B)Assets increase $7,000 and stockholders' equity increases $7,000.
C)There is no change to total assets,liabilities or stockholders' equity.
D)Liabilities decrease $7,000 and stockholders' equity increases $7,000.

Question

Quizplus · Accepted Answer

Prepaying rent means paying rent in advance, which is recorded as a prepaid expense. In this case, the company is paying rent in October for November and December, so it is considered a prepaid expense for October. This transaction does not affect total assets, liabilities, or stockholders' equity. It only affects the cash account, which decreases by $7,000, and the prepaid rent account, which increases by $7,000.

In October,your Company Prepays Rent of $7,000 for November and December.Which