A sole trader extracted a trial balance as at 31st December 2025 which included Rent Expen… — JAMB UTME

A sole trader extracted a trial balance as at 31st December 2025 which included Rent Expense of $\text{N}450,000$ and Commission Received of $\text{N}240,000$ . At year end, the following adjustment details were provided:
- Rent paid in advance for 2026 amounted to $\text{N}50,000$ , while rent for December 2025 of $\text{N}40,000$ remained unpaid.
- Commission received included $\text{N}30,000$ paid in advance for 2026, while commission earned but not yet received amounted to $\text{N}45,000$ .

What are the correct net amounts to be credited to the Profit and Loss Account for Commission Received and debited as Rent Expense respectively for the year ended 31st December 2025?

$\text{N}255,000$ and $\text{N}440,000$ Answer
B
$\text{N}225,000$ and $\text{N}460,000$
C
$\text{N}315,000$ and $\text{N}540,000$
D
$\text{N}165,000$ and $\text{N}360,000$

Answer

Commission Received credited to Profit and Loss Account =

\text{N}255,000

; Rent Expense debited to Profit and Loss Account =

\text{N}440,000

Under the accrual concept, income and expenses relate strictly to the current period regardless of when cash is received or paid. Deducting the prepaid rent of

\text{N}50,000

and adding the accrued rent of

\text{N}40,000

gives a net rent charge of

\text{N}440,000

. Deducting prepaid commission of

\text{N}30,000

and adding accrued commission of

\text{N}45,000

gives net commission income of

\text{N}255,000

Step-by-Step Solution

Calculate the net Rent Expense for the current financial year

Rent Expense =

\text{N}450,000 - \text{N}50,000 + \text{N}40,000 = \text{N}440,000

Prepaid expense relating to the next year must be deducted, and accrued expense owing for the current year must be added to match expenses to the current period.

Calculate the net Commission Received income for the current financial year

Commission Income =

\text{N}240,000 - \text{N}30,000 + \text{N}45,000 = \text{N}255,000

Prepaid income received for the next period must be deducted, and accrued income earned but not yet received must be added under the accrual concept.

Key Concept

Accruals and Prepayments Matching Principle

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