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

Which journal entry correctly records rent of Rs 8,000 that is outstanding at the year end?

The correct entry is to debit Rent Account and credit Outstanding Rent Account by Rs 8,000. This raises the rent expense for the year and creates a liability for the amount still unpaid at the year end.

  1. ARent A/c Dr 8,000 to Outstanding Rent A/c 8,000Correct
  2. BOutstanding Rent A/c Dr 8,000 to Rent A/c 8,000
  3. CPrepaid Rent A/c Dr 8,000 to Rent A/c 8,000
  4. DRent A/c Dr 8,000 to Cash A/c 8,000

Explanation

Outstanding rent is an expense incurred but unpaid, so the Rent account is debited to increase expense and Outstanding Rent (a liability) is credited. Option 2 reverses the entry, and option 3 records a prepaid asset instead. Option 4 assumes cash was paid, which is not the case.

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