Question

Three months rent of the next financial year is paid in advance, how this transaction effects accounting equation

• A. Total assets remains unchanged, total liabilities remains unchanged.
• B. Total assets increases, total liabilities decreases.
• C. Total assets decreases, total liabilities increases.
• D. Total assets increases but total liabilities remains the same.

Answer 1

The correct option is A Total assets remains unchanged, total liabilities remains unchanged.

The Entry for Above transaction will be
Prepaid Rent a/c Dr.
To Cash
Both are assets therefore, there will be no change in the assets and liabilities