Question

On December 31, 2016, the manager of Jordan Creek Apartments noticed that four tenants had not paid their December rent amounting to $500 each. The manager spoke to each tenant individually and was promised by all 4 that the rent would be paid by January 15, 2017. Assuming the tenants follow through and make their payments by January 15, 2017, Jordan Creek should make the following entry as of December 31, 2016:______.

Cash (dr) $2,000
Rental Receivable (cr) $2,000
A. True
B. False

Answer 1

B. False

The business should not make this entry on 31 December.

Step-by-step explanation:

The accounting principle of prudence states that profits should not be overstated and losses should not be understated. This means that any profit should not be recorded until it is realized while any losses should be recorded as soon as they are anticipated. As the business has not received cash from tenants on 31 December 2016, it should not make any entry debiting cash and crediting the rent receivable.

The business should let the rent receivable balance intact until the rent is received on 15 January and till then record no entry to such as the above.