GENERAL KNOWLEDGE

RENT OWED BY A DEPARTMENT IS TREATED IN THE BALANCE SHEET AS

  • A. asset of the business
  • B. asset of the department
  • C. liability of the business ✓
  • D. liability of the department

 

The answer to the question is: C. liability of the business

Rent owed by a department represents an obligation of the business to pay for the use of a property or space, and therefore, it is classified as a liability on the balance sheet.

The balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It presents the assets, liabilities, and equity of the business. Liabilities are obligations that arise from past transactions or events, and they represent future sacrifices of economic benefits that the business is obliged to make to other entities. Rent owed by a department falls under this category as it represents an obligation to pay for the use of premises or facilities.

When rent is owed by a department, it signifies that the business has an outstanding liability for which payment is due in the future. This liability is recorded on the balance sheet as it reflects the financial obligations of the business. Therefore, it is classified as a liability of the business rather than an asset.

In summary, rent owed by a department is treated in the balance sheet as a liability of the business because it represents an obligation to pay for the use of property or space, and it reflects the future financial commitments of the business.

Leave a Reply

Your email address will not be published. Required fields are marked *