Question

If a seller collected rent of $00 from the buyer payable in advance, on Aug 1, which statement is TRUE at the closing on Aug 15, if the closing date is an expense to the seller?

Answer 1

If the closing date is an expense to the seller, the seller should account for the rent collected in advance by recording a journal entry. This entry recognizes the revenue earned for the period from Aug 1 to Aug 15 and accounts for the expense of the remaining period of August.

Step-by-step explanation:

If the closing date is an expense to the seller, then the seller needs to account for the rent collected in advance that covers the period from Aug 1 to Aug 15. This means that the seller has already received payment for the rent for the entire month of August, but the closing on Aug 15 is an expense that the seller needs to account for.

This can be done by recording a journal entry to recognize the earning of the revenue and the corresponding expense. The journal entry would be:

• Debit: Rent Revenue - $100 (to recognize the rent earned for Aug 1 to Aug 15)
• Debit: Rent Expense - $50 (to account for the rent payable for Aug 16 to Aug 31)
• Credit: Rent Received in Advance - $100 (to decrease the liability of the rent collected in advance)

By recording this journal entry, the seller recognizes the revenue earned for the period from Aug 1 to Aug 15 and accounts for the expense of the remaining period of August.