Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Financial Statements - II

Question:

If the rent of three month is still to be paid the adjustment entry will be :

Options:

Outstanding rent A/c Dr.
      To Rent A/c

Profit and loss account Dr.
    To Rent A/c

Rent A/c Dr.
     To Profit and loss account

Rent A/c Dr.
    To Outstanding rent A/c

Correct Answer:

Rent A/c Dr.
    To Outstanding rent A/c

Explanation:

The correct answer is option 4-
Rent A/c Dr.
    To Outstanding rent A/c.

The correct adjustment entry, if the rent for three month is still to be paid at the end of the accounting period, would be:
Debit rent account and Credit outstanding rent account.

* Rent is an expense, and it needs to be recognized in the Profit and Loss (Income Statement) for the period it relates to, regardless of whether it has been paid or not.

* Outstanding rent account- This represents the liability that the company owes for rent that has not yet been paid. It is recorded on the balance sheet as a current liability under "Outstanding Expenses"