Question

รร 6 The tenant of Crazee Dealers paid his rent for March a t is R ASSIGNMENT 01 (continued) and April 20.8 on 28 7 500 per month. The financial will the year-end closing transfer of the above th monthy rentay sa etle accounting equation? 9 Account credit E + Account debit 0 Income received in R15 000 Rent income advance +R15 000 Rent income (2) Income received in advarnce Rent income Income received in R15 000 R15 00 Us to advance (4) Income received inRent income (5) / Rent income Income received in | 0 +R15 000 advance +R15000 advance 7. Which of the following statements are correct? a) Accrued expenses are expenses, which relate to the current financial year but were o paid at the end of the financial year

Answer 1

As the tenants are paying rent for the two months in advance i.e. 7500 per month each for March and April on 28th February, the income of R 15000 (7500*2) is being paid in advance. So, it will effect the accounting equation on year-end closing in the following way:

Correct answer : (5) Account Debit = Rent Income

Account Credit = Income received in advance

A = + 15000 ( as cash is received so asset is increasing in the name of rent income)

L = + 15000 ( liability is increasing as the income is received in advance for which services are yet to be paid)