Question

On September 1, Richardson Company received $35,100 for six months of rent, in advance. Richardson credited Rent Revenue, which is an alternate way of recording the initial receipt of cash. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on________________.

Answer 1

The main effect will be on administrative expenses because the company is going to have rental expenses for three additional months than what was required then in this case, what had to be done was to register the cash against a prepayment expenses (asset) at the end of year it would be left in the asset and the corresponding income expensel should be carried out month by month if the associated company is not done registering badly its expenses and subsequently affecting the net profit.