Oracle Financials Cloud: Accounts Payable 2017 Implementation Essentials — Question 46

You are using the Payable's Deferred Expense feature (also known as Multiperiod Accounting). You have entered an invoice for a three-month lease that is entered on Jan 10
. The total expense is $12,000 and it covers the rental period from Jan 1 st to Mar 31 st
.
Assuming that the rental expenses are split evenly per month and a monthly accounting calendar is used, what would the accounting entry be?

Answer options

• A. On Jan 10 th , Debit Prepaid Expense for 12,000 and Credit Liability 12,000
• B. On Jan 31 st , Debit Rental Expense for 4,000 and Credit Prepared Expense for 4,000 On Feb 28 th , Debit Rental Expense for 4,000 and Credit Prepared Expense for 4,000
• C. On Jan 10 th , Debit Prepaid Expense 12,000 and Credit Liability for 12,000 and then On Jan 31 st , Debit Rental Expense for 4,000 and Credit Prepared Expense for 4,000 On Feb 28 th , Debit Rental Expense for 4,000 and Credit Prepared Expense for 4,000 On Mar 31 st , Debit Rental Expense for 4,000 and Credit Prepared Expense for 4,000
• D. On Mar 31st, Debit Rental Expense for 4,000 and Credit Prepared Expense for 4,000 On Jan 10 th , Debit Rental Expense for 12,000 and Credit Cash for 12,000

Correct answer: C

Explanation

The correct answer is C because it accurately reflects the entire accounting process: recording the prepaid expense at the beginning and then recognizing the rental expense evenly over the three months. Option A only records the initial entry without recognizing the monthly expenses, while B and D do not account for the full period's expenses correctly.