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CSEET · Fundamentals of Accounting · Preparation of Final Accounts for Sole Proprietorship

Rent paid during the year ended 31 March 2025 was ₹48,000, which includes ₹12,000 paid in advance for April–June 2025. How will this be shown in the final accounts of the proprietor?

Rent charged to the Profit and Loss Account is ₹36,000, being ₹48,000 paid less ₹12,000 relating to the next year. The ₹12,000 is prepaid rent and appears as a current asset in the Balance Sheet, because the benefit is yet to be received.

  1. ARent of ₹48,000 in the Profit and Loss Account and nothing in the Balance Sheet
  2. BRent of ₹36,000 in the Profit and Loss Account and prepaid rent of ₹12,000 as an asset in the Balance SheetCorrect
  3. CRent of ₹60,000 in the Profit and Loss Account and prepaid rent of ₹12,000 as a liability
  4. DRent of ₹36,000 in the Profit and Loss Account and outstanding rent of ₹12,000 as a liability

Explanation

Rent applicable to the year is 48,000 - 12,000 = 36,000, which is charged to the Profit and Loss Account. The 12,000 paid for the next period is prepaid expense, a current asset. Option 4 treats an advance as an amount owed, which is wrong.

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