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Rent is paid for the month April 2013 in March 2013 .the accounting year ended in March 31st 2013 .the accountant has shown it on the asset side of the balance sheet. Has he given the correct treatment. Give reasons?
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Rent is paid for the month April 2013 in March 2013 .the accounting ye...
Correct Treatment of Prepaid Rent in Accounting
Prepaid rent is an advance payment made by a tenant to a landlord for the use of a property for a specified period. In this case, rent is paid in March 2013 for the month of April 2013. The accounting year ended on March 31st, 2013. The accountant has shown it on the asset side of the balance sheet. Here, we will discuss whether the accountant has given the correct treatment of prepaid rent in accounting.
Explanation
The accountant has given the correct treatment of prepaid rent in accounting by showing it on the asset side of the balance sheet. The reason for this is that prepaid rent is a current asset and represents an expenditure that has been paid in advance, but not yet incurred.
When rent is paid in advance, it is recorded as a prepaid expense. Prepaid expenses are assets because they represent future economic benefits that will flow to the business. In this case, the future economic benefit is the use of the property for the month of April 2013.
The prepaid rent will be recognized as an expense in the income statement for the month of April 2013, when it is incurred. The accountant has correctly recorded the prepaid rent as an asset on the balance sheet as of March 31st, 2013, because it represents an economic benefit that will be received in the future.
Conclusion
In conclusion, the accountant has given the correct treatment of prepaid rent in accounting by showing it on the asset side of the balance sheet. Prepaid rent is a current asset because it represents an expenditure that has been paid in advance but not yet incurred. It will be recognized as an expense in the income statement for the month of April 2013 when it is incurred.
Community Answer
Rent is paid for the month April 2013 in March 2013 .the accounting ye...
Yes, because he has paid rent in advance for one month & prepaid expences are treated as assets
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Rent is paid for the month April 2013 in March 2013 .the accounting year ended in March 31st 2013 .the accountant has shown it on the asset side of the balance sheet. Has he given the correct treatment. Give reasons?
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