If the Prepaid Rent account is not adjusted at the end of the period,what effect will this have on the financial statements?
A)Liabilities will be overstated and net income will be understated.
B)Assets will be understated and net income will be understated.
C)Assets will be overstated and net income will be overstated.
D)Cash will be overstated and net income will be overstated.

Question

Quizplus · Accepted Answer

When a company first makes a payment in advance for rent,the payment provides an economic resource to the company,so it is initially recorded as an asset called Prepaid Rent.As time passes,an entry should be made to increase Rent Expense and decreased Prepaid Rent.If that entry is not made,assets will be overstated and expenses will be understated (causing net income to be overstated).

If the Prepaid Rent Account Is Not Adjusted at the End