On October 31,your company prepays rent of $7,000 for November and December.Which of the following describes the effects of this transaction on your company's accounting equation?
A) Assets decrease $7,000 and liabilities decrease $7,000.
B) Assets increase $7,000 and stockholders' equity increases $7,000.
C) There is no change to total assets, liabilities or stockholders' equity.
D) Liabilities decrease $7,000 and stockholders' equity increases $7,000.

Question

Quizplus · Accepted Answer

The prepayment of rent decreases cash (an asset) by $7,000 and increases prepaid rent (another asset) by $7,000, resulting in no net change to total assets, liabilities, or stockholders' equity.

On October 31,your Company Prepays Rent of $7,000 for November