When it paid its rent in advance,a company recorded Prepaid Rent.As of the end of the accounting year,the prepayment had expired.If no adjustment is made to record this expiration,which of the following will occur?

Question

Quizplus · Accepted Answer

Since no adjustment was made to record the expiration of the prepaid rent, the assets will remain overstated and expenses will remain understated. This is because the prepaid rent was originally recorded as an asset when it was paid in advance, but as time passes, it becomes an expense as it is used up. Therefore, if the expiration is not recorded, the asset will remain on the books and the expense will not be recognized, resulting in an overstatement of assets and an understatement of expenses.

When It Paid Its Rent in Advance,a Company Recorded Prepaid