When a corporation pays its rent in advance, it reduces its assets and liabilities on its balance sheet.
When a business pays its rent in advance?
- Rent advances diminish the amount in the cash account while increasing the balance in the prepaid rent account. Cash and prepaid rent are examples of a company's assets.
- Rent paid upfront is a cash flow that results in an asset loss (i.e cash). Rent in advance is an asset gain (i.e. prepaid rent) since the benefit will be utilised in the future.
- A company's monthly rent payment depletes the company's cash asset. This is recorded as a Cash credit. If the pay is for the present month's rent, the second account, which is the temporary account, will be debited.
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