Rent is paid one year in advance.The payment is recorded as an asset,Prepaid Rent,and 1/12 of the amount each month is recorded as Rent Expense.This is an example of which of the following concepts?

Question

Quizplus · Accepted Answer

This is an example of the matching concept, which requires that expenses be recognized in the same period as the corresponding revenue. In this case, the prepaid rent is considered an asset because the payment has been made in advance. However, as the rent is used up over the year, it should be recognized as an expense in the corresponding months. This is done by dividing the total amount by 12 and recording 1/12th of the amount as rent expense each month.

Rent Is Paid One Year in Advance