How will Prepaid Rent Expense be classified on a Balance Sheet?

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BlackTom AI · Accepted Answer

In accounting, prepaid rent is a payment made in advance for the right to use a property in the future. This creates a future economic benefit that will be realized as the rent expense over the period it covers, so it is recorded as an asset until the benefit is consumed.

Option a: Current Liability. This is incorrect because a prepaid rent does not represent an obligation to pay in the future; rather, it is a prepayment made by the company. A liability would arise if the company owed rent or had not yet paid it.

Option b: Other Expense. Prepaid rent is not an expense yet. It has not been consumed in the current period, so it should not be classified as an expense on the balance sheet. Expenses are recognized on the income statement when incurred, not on the balance sheet as a prepaid amount.

Option c: Current Asset. This is the correct classification: prepaid rent is a current asset because it will be realized or consumed within one year (or the operating cycle), converting into rent expense as time passes.

Option d: Non-current Asset. This would apply only if the prepayment extended beyond one year or beyond the normal operating cycle. Since prepaid rent is typically expensed in the near term, it does not meet the non-current asset criteria.

MUF0022 Accounting Unit 2 - Semester 2, 2025 Quiz: BDA: Expenses

How will Prepaid Rent Expense be classified on a Balance Sheet?

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