Assume that a landlord collects $4,000 from a tenant in December for rent for an office in January. Under accrual accounting, the books at the end of December should reflect
A) A liability of $4,000 and a revenue of $4,000
B) Cash of $4,000 and a revenue of $4,000
C) Nothing at all
D) Cash of $4,000 and a liability of $4,000

Question

Quizplus · Accepted Answer

Under accrual accounting, when the landlord receives rent in advance, it is recorded as a liability (unearned revenue) because the service (use of the office space) has not yet been provided. The cash account also increases because the landlord has received the money. Therefore, the correct entry is to increase cash and increase a liability account.

Assume That a Landlord Collects $4,000 from a Tenant in December