Petite Inc. pays its rent of $57000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted which of the following will be true?

Question

Quizplus · Accepted Answer

Failing to adjust for prepaid rent means the expense is not recognized in February, leaving the prepaid rent asset account higher than it should be by one month's rent ($57000/12 = $4750) and not reducing net income by that expense, thus overstating both assets and net income/owner's equity by $4750.