Rent of £9,000 was paid during the year. It included £1,500 relating to the following year. At the start of the year £600 of rent was owing, and it was paid as part of the £9,000. There was no rent owing at the year end. What is the rent expense for the year?
Answer and explanation
Correct answer: A. £6,900
- Step 1: Start with cash paid of £9,000.
- Step 2: Remove the £600 that relates to the previous year (the opening accrual): £8,400.
- Step 3: Remove the £1,500 prepaid for next year: £8,400 - £1,500 = £6,900.
Answer
£6,900.
Why not the others: £9,000 is the cash paid and ignores both the accrual and the prepayment. £7,500 removes the prepayment but forgets that £600 belongs to the previous year. £8,100 adds the opening accrual instead of deducting it before removing the prepayment.
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