Question

A certain entity pays the rent in advance for three months on the first day of the month of housing. On the 30th of the FIRST month, the amount paid will be treated according to the accrued regime as follows:

(A) wholly as Active because it is an early expense or due
(B) partially as Active and as Liabilities
(C) one month as expense and the other two months as Active
(D) in full as an expense because it is cash disbursement in the period
(E) two months as expense and one month as Active

Answer 1

The accrued regime will treat this payment as:

C) one month as expense and the other two months as Active

Step-by-step explanation:

The entity pays three months advance on the first day of the period itself so the whole money is counted towards active and not as counted towards expense in this time.

The three months payment that is due is not thus paid on the first as is required.

It is only paid on the 30th of the first month by then the first month's rent had to have passed by.

So the one month's rent paid would be the expense that is paid up and not the advance while other two will be treated as advance only.