If a company pays rent in advance and debits a Rent Expense account, an adjusting entry is prepared at the end of the year if
A) the company's profit is overstated.
B) the company's liabilities are understated.
C) a portion of the rent is still prepaid.
D) the company's expenses are understated.

Question

Quizplus · Accepted Answer

When a company pays rent in advance and debits a Rent Expense account, an adjusting entry is necessary if a portion of the rent is still prepaid at the end of the year. This is to ensure that the prepaid portion is correctly reflected as a Prepaid Expense (an asset) rather than an expense, aligning with the matching principle of accounting.

If a Company Pays Rent in Advance and Debits a Rent