On January 31,your company prepays rent of $13,250 for February and March.Which of the following describes the effects of this transaction on your company's accounting equation?

Question

Quizplus · Accepted Answer

This transaction involves paying for the right to use the rented building for the two months following the payment.This payment provides an economic resource to the company (building space for two months),so it will be initially reported as an asset called Prepaid Rent.Prepaid Rent,an asset,increases while Cash,another asset,decreases.There is no effect on the total amounts of assets,liabilities,or stockholders' equity reported on January 31.

On January 31,your Company Prepays Rent of $13,250 for February