On October 1, 2019, a company paid $9,000 rent in advance. The rent per month is $1,000. Assuming the company's accounting period ends on December 31, 2019, what will be reported on the financial statements?

Question

Quizplus · Accepted Answer

The company paid $9,000 rent in advance, which means they have prepaid rent for 9 months (October-December). Since the company's accounting period ends on December 31, 2019, only 3 months of rent (January-March 2020) will be incurred in the next accounting period. Therefore, at December 31, 2019, the company will report Prepaid Rent of $6,000 ($1,000/month x 6 months remaining) on its balance sheet. Rent Expense of $9,000 will not be reported on the income statement until the rent is actually incurred during the next accounting period. Rent Revenue is not applicable as the question does not mention any rental income earned by the company.

On October 1, 2019, a Company Paid $9,000 Rent in Advance