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CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors

Rent for March 2025 of Rs 15,000 remains unpaid on 31 March 2025, the year end. Which adjusting entry is correct?

The unpaid March rent is an expense of the current year, so Rent Account is debited and Outstanding Rent Account is credited for Rs 15,000. This increases expense and creates a liability. No cash has moved, so crediting cash would be wrong.

  1. ARent A/c Dr 15,000 to Outstanding Rent A/c 15,000Correct
  2. BPrepaid Rent A/c Dr 15,000 to Rent A/c 15,000
  3. COutstanding Rent A/c Dr 15,000 to Rent A/c 15,000
  4. DRent A/c Dr 15,000 to Cash A/c 15,000

Explanation

The expense belongs to the current year, so Rent A/c is debited and a liability, Outstanding Rent, is credited. Option 3 reverses the entry and would reduce expense. Option 4 wrongly assumes cash was paid.

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