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Accounting: Is Prepaid Rent an Asset or Liability?
Accounting
High School Grade 11/12 (or College Introductory Accounting)
Question Content
Is prepaid rent an asset or liability?
Correct Answer
Asset (Current Asset)
Detailed Solution Steps
1
Step 1: Define asset: An asset is a resource controlled by the business with future economic benefit.
2
Step 2: Analyze prepaid rent: Prepaid rent is rent paid in advance, so the business has the right to use the rented property for a future period, which is an economic benefit. It is expected to be used within one year, so it is a Current Asset.
Knowledge Points Involved
1
Prepaid Expenses as Current Assets
Prepaid expenses are payments made in advance for goods or services to be received in the future. They are classified as current assets because the economic benefit (use of the asset/service) will be realized within one year.
2
Asset Recognition Criteria
For an item to be recognized as an asset, it must be controlled by the business, result from past events, and generate future economic benefits. Prepaid rent meets all these criteria.
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