Question

Liverpool Company made payment on rent owed by erroneously increasing rent expense and properly decreasing cash. An accrual entry for rent expense had previously been properly recorded by debiting rent expense and crediting rent payable. Which of the following is true? A. Net income is overstated. Rent expense is understated. Rent payable is understated. All of the above are true. None of the above is true.

Answer 1

When rent owed is paid but wrong entry made

Rent expense account...............Debit

To cash account........................Credit

Correct entry shall be

Rent payable account ............Debit

To Cash account...................Credit.

When rent expense incurred, the rent expense debited and rent payable credited. So it shows that rent expense already stated in the income statement.

At the time of payment instead of debiting Rent payable, Rent expense has been debited. So, this increases the rent expense, which has already been recorded earlier.

So, this understates the Net Income. and Rent Expense is overstated. Rent payable is overstated.

So, Correct answer is None of the above is TRUE