On November 1 of the current year, a business paid the November rent on the building that it occupies. (a) Do the rights acquired at November 1 represent an asset or an expense? (b) What is the justification for debiting Rent Expense at the time of payment?
(a)
Adjusting entries:
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).
Prepaid expenses:
The prepaid expenses are those expenses which are paid in advance, before they are incurred. These are treated as asset for the business.
To determine: The rights acquired at November 1 represents an asset or an expense.
On November 1 of the current year, a business paid the November rent on the building that it occupies. So here the business has paid the rent in advance before they incurred. It is a case of prepaid expenses, and all the prepaid expenses of the business are treated as assets...
(b)
To justify: The reason for debiting the rent expense at the time of payment.
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