When a portion of prepaid rent expires,what will be the effect on the balance sheet equation?
A)This transaction affects only the income statement,so there will be no effect on the balance sheet.
B)There will be no overall effect on total assets,because two different asset accounts will change by the exact dollar amount,with one increasing and the other decreasing.
C)Total assets and total liabilities will go down by the exact same dollar amount.
D)Total assets and total stockholders' equity will go down by the exact same dollar amount.
E)Without knowing the dollar amount of the transaction,the effect on the balance sheet equation cannot be determined.

Question

Quizplus · Accepted Answer

When a portion of prepaid rent expires, it is recognized as an expense on the income statement, reducing net income and, consequently, stockholders' equity. The prepaid rent asset account on the balance sheet decreases by the same amount, leading to a decrease in total assets. There is no effect on liabilities.

When a Portion of Prepaid Rent Expires,what Will Be the Effect