The Long, Inc. uses the accrual basis of accounting. Long's rent expense account had a $18,000 balance at the end of the year. The prepaid rent account had a $5,000 balance at the beginning of the year and a $9,000 balance at the end of the year. How much cash was paid for rent during the year?

Question

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Rent expense is recognized on the accrual basis when rent is incurred, not when cash is paid. The increase in the prepaid rent account during the year indicates that $9,000 of rent was paid in advance, and the $18,000 balance in the rent expense account indicates that $18,000 of rent was recognized as an expense during the year. Therefore, the total cash paid for rent during the year was $9,000 (the increase in prepaid rent) plus $18,000 (the rent expense recognized), which equals $27,000. However, $5,000 of that was the beginning balance of prepaid rent, so the actual cash paid for rent during the year was $22,000 (answer choice D).