True or False- John’s Plumbing pays rent on 28 June 2013 in advance of the rental period for which it applies, 01-31 July 2013. John’s Plumbing follows an accrual basis of accounting and has a fiscal year-end of 30 June. It will claim the rent expense on its income statement for the fiscal year ended 30 June 2013.
Answer: False
Since the rent pertains to the period 01-31 July 2013 and John’s Plumbing follows the accrual basis of accounting, it will claim the rent expense on its income statement in the period to which it pertains irrespective of when it is actually paid. Thus, John’s will claim the rent expense on its income statement not for the fiscal year ended 30 June 2013 but for the fiscal year ended 30 June 2014. On 30 June 2013 it will carry the amount paid on its balance sheet as prepaid rent and then claim it as rent expense in July 2013.
True or False- John’s Plumbing pays rent on 28 June 2013 in advance of the rental...
John’s Plumbing pays rent on 28 June 2013 in advance of the rental period for which it applies, 01-31 July 2013. John’s Plumbing follows an accrual basis of accounting and has a fiscal year-end of 30 June. It will claim the rent expense on its income statement for the fiscal year ended 30 June 2013. (T/F)
true or false? When a company pays its rent in advance, an asset is reported on the balance sheet.
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