If a business issued a check for $1,000 to pay for two months rent in advance,analyze the effect on the firms' assets,liabilities and owner's equity.
A) Cash will increase
B) Accounts Payable will decrease
C) Prepaid Rent will increase
D) Owner's Capital will increase

Question

Quizplus · Accepted Answer

The issuance of a check for $1,000 to pay for two months rent in advance will increase the firm's Prepaid Rent account. This account is an asset account that represents rent paid in advance. Cash will decrease by $1,000 as the payment is made, but this effect is not long-term. Accounts Payable will not be affected as the payment is made in advance and is not due at this time. Owner's Capital will not increase as a result of this transaction.

If a Business Issued a Check for $1,000 to Pay