Question

Classify the following items as Asset, Liabilities, and owner's equity. Items = Office supplies inventory, prepaid...

Classify the following items as Asset, Liabilities, and owner's equity.

Items = Office supplies inventory, prepaid rent, account receivable, prepaid insurance, accumulated depreciation.

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Answer #1

Items:

1. Office supplies inventory = Asset

2. Prepaid rent = Asset

3. Accounts receivable = Asset

4. Prepaid insurance = Asset

5. Accumulated depreciation = Asset, but with a credit balance i.e. contra asset account. Although it reduces the total of assets on the balance sheet, accumulated depreciation cannot be considered as a liability because it is not an obligation to the company to pay such amount to a third party. Hence, it is considered as a contra asset account.

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