Question

Zoey owns a bakery. They rent a storefront to sell their products and separate kitchen space to create the products. How should they expense their rent for both the storefront and the kitchen on the balance sheet?

Answer 1

Zoey should treat the rent for the storefront as a selling expense and the rent for the kitchen as an operating expense on the balance sheet.

Step-by-step explanation:

When expensing rent for both the storefront and the kitchen on the balance sheet, Zoey should treat the rent for the storefront as a selling expense and the rent for the kitchen as an operating expense.

The selling expense is an expense related to the costs of selling products or services, and includes expenses such as rent, utilities, and advertising. The selling expense is recorded on the income statement and reduces the net income.

The operating expense is an expense incurred in the regular operations of the business, and includes expenses such as rent, salaries, and insurance. The operating expense is recorded on the income statement and reduces the net income.