CA Foundation · Accounting · Theoretical Framework
Under the modern (accounting equation) approach, which of the following accounts is classified as a liability?
Outstanding rent is the liability. It represents rent already consumed but not yet paid, so the business owes it. Prepaid insurance and accrued income are assets, while drawings reduce the owner's capital rather than being a liability.
- APrepaid insurance
- BAccrued income
- COutstanding rentCorrect
- DDrawings
Explanation
Outstanding rent is an amount the business owes for rent already used, so it is a liability. Prepaid insurance and accrued income are assets because they represent future benefits or amounts receivable. Drawings is a deduction from capital, not a liability.
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