Rent prepaid - 1/01/2014 - N600
Rent paid - 31/12/2014 - N3,000
Rent prepaid - 31/12/2014 - N400.
The balance sheet as at 31st December 2014 will show
Current asset of N600
Current asset of N400
Current liability of N400
Current asset of N600
Correct answer is B
Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or have not yet expired.
N400 is the only future expense that would still be viable at the end of the accounting year. The N400 represents current assets which are expected to be used or converted to cash within the year.