If Prepaid Rent for the period is not adjusted,
A) assets will be overstated and expenses will be overstated.
B) assets will be overstated and expenses will be understated.
C) assets will be understated and expenses will be overstated.
D) assets will be understated and expenses will be understated.

Question

Quizplus · Accepted Answer

Prepaid rent represents an advance payment for future rent expenses. If prepaid rent is not adjusted, it means that the rent expense for the current period will not be recognized and the prepaid rent asset will be overstated. This leads to the assets being overstated and expenses being understated in the current period. Therefore, the correct answer is (B) assets will be overstated and expenses will be understated.

If Prepaid Rent for the Period Is Not Adjusted