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CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship

Under the accrual basis, a proprietor's Profit and Loss Account for the year should include rent expense of how much if rent paid during the year is ₹60,000, rent outstanding at the start was ₹10,000 and rent outstanding at the end is ₹15,000?

Rent expense for the year is ₹65,000. Cash paid of ₹60,000 is reduced by last year's outstanding ₹10,000 that it settled, and increased by ₹15,000 still outstanding for the current year, as the accrual basis charges expenses incurred in the period.

  1. A₹65,000Correct
  2. B₹60,000
  3. C₹75,000
  4. D₹85,000

Explanation

Expense = Paid − opening outstanding + closing outstanding = 60,000 − 10,000 + 15,000 = ₹65,000. Option ₹55,000 would come from reversing the signs, and it is not listed. The payment of ₹60,000 includes ₹10,000 for the previous year, so it must be removed.

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