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A prepayment of £12,500 has the following effect on the income statement: at the end of the accounting year ABC LIMITED realises that it has prepaid a rental expense by £12,500. What is the effect of this transaction on the income statement?
A increase gross profit by £12,500
B decrease net profit by £12,500
C increase net profit by £12,500
D decrease gross profit by £12,500?
Please do not just type out test questions and expect an answer. You must have an answer in the same book in which you found the question and so ask about whatever it is in the answer that you are not clear about and then I will explain.
If they have prepared an expense then the expense for this year is lower and therefore the net profit will be higher.
I suggest that you watch my free lectures. They are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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