If rent for 2012 is paid in advance during 2011 but is mistakenly debited to Rent Expense in 2011,

Question

Quizplus · Accepted Answer

Since the rent payment was mistakenly debited to Rent Expense in 2011, expenses in 2011 were overstated, leading to an understated net income. The rent payment should have been recorded as a prepaid expense, which would have been recognized as an asset until the rent was actually due in 2012. Therefore, the mistake leads to an understatement of net income for 2011.

If Rent for 2012 Is Paid in Advance During 2011