A business moved into new offices on 1 January 2024. The landlord requested them to pay two months’ rental before they moved in. What is the classification of the type of account u... A business moved into new offices on 1 January 2024. The landlord requested them to pay two months’ rental before they moved in. What is the classification of the type of account used by the business for the rental paid in December 2023?
Understand the Problem
The question is asking for the classification of the type of account used by a business for rental payments made prior to moving in, specifically focusing on the accounting principles that define the nature of these payments.
Answer
Prepaid expense.
The classification of the type of account used by the business for the rental paid in December 2023 is a Prepaid Expense.
Answer for screen readers
The classification of the type of account used by the business for the rental paid in December 2023 is a Prepaid Expense.
More Information
Prepaid expenses are assets that represent payments for services to be received in future accounting periods.
Tips
A common mistake is classifying prepaid expenses as incurred expenses, which are for services already received.
Sources
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