Question

While preparing the annual financial statements, the balance of rent account should be treated as the balance of a __________.

• A. Personal Account
• B. Nominal Account
• C. Real Account
• D. Deferred Expenditure Account

Answer 1

The correct option is A Personal Account

• Accounts recording transactions with a person or group of persons are known as personal accounts. These accounts are necessary, in particular, to record credit transactions. Personal accounts are of the following types:
  
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• Natural persons: An account recording transactions with an individual is termed as a natural persons' personal account. For e.g., Kamal's account. Mala's Account, Sharma's Account.
• 
  
• Artificial or legal persons: An account recording financial transactions with an artificial person created by law or otherwise is termed as artificial persons; personal accounts. For e.g. Firm's accounts, limited companies accounts. educational institutions accounts.
• 
  
• Representative personal accounts: An account indirectly representing a person or persons is known as representative personal accounts. When accounts are of similar nature and their number is large, it is better to group them under one head and open a representative personal account.

Rent account falls under representative personal accounts, and hence the balance of rent is treated as the balance of personal account while preparing the annual financial statements.