UK What does this sentence mean? Should it written in balance sheet?

[mooncrystal4869]

"Prior to the start of his business, he has secured an industrial unit for his workshop at a monthly rental of £450"
What does this sentence mean? Does it mean the workshop is rented at £450 per month or the industrial unit is rented ? Should this amount be written into balance sheet? Is it a prepaid rent?

 

[Virgolady24]

I will try to be as accurate as possible with this

If I was faced with your problem this is what I would think if it were me. Since I am not an accountant I have no right to give any answers unless I certainly know the answer. In four years maybe six years, I am going to take the CPA and CMA exams. I am willing to interpret the meaning of this sentence from my perspective. Please do not rely on my answer because I do not want to give any wrong answers when it comes to this field. I do know rent expense goes on the income statement I do know that much. Prepaid rent is an asset and becomes a liability over time so the account has to be updated. The industrial unit would be rented not the workshop. The workshop would be the building and the industrial unit would be a fixed asset because it depreciates overtime. Rent expense is an equity account and cash is an asset account. If the gentleman whoever he may be paid to secure an industrial unit for his workshop for L450 per month prior to the start of his business then it would be prepaid rent which is a asset account that becomes an expense called rent expense which is an equity account if the rent on the industrial unit is not paid in full. I hope I helped you ask an accountant about this to make sure this is not the wrong answer. I am not an accountant but I do want to be because I can do things that most people cannot. Accountants have to behave in an ethical manner and have to answer to the manager about where all the money went. I see you are from a different country so your country might do things differently so this might not be accurate. I am glad I helped you anyway at least I tried.

 

[Virgolady24]

If I gave the wrong answer I am sorry. I made a B on my final exam in accounting which I am very proud of it but I got a C average for the whole course. I will get an A in Accounting2 and I promise I will. I would have got an A this time but I was absent on test day so my grade dropped. I have learned a lot of amazing things about accounting. Although, I did run into a couple of chapters that gave me some trouble that was inventories, and fixed assets. I was absent when my professor went over the fixed assets chapter. I am glad I helped anyway.

 

[Virgolady24]

Cash does have to be paid in order to gain an asset. Since I love to obey rules, I like to use debit and credit rules. Asset accounts always carry a normal debit balance and liabilities carry a credit balance. When cash is paid to a creditor, it is credited which means an asset is decreased.I am not going to say cash has been paid because I do not know. There is a need for more details on this transaction. I do not give the wrong answer.

 

[Samir]

"Prior to the start of his business, he has secured an industrial unit for his workshop at a monthly rental of £450"
What does this sentence mean? Does it mean the workshop is rented at £450 per month or the industrial unit is rented ? Should this amount be written into balance sheet? Is it a prepaid rent?

To me, this sounds like the industrial unit rents at £450 per month. I think this would be written as prepaid rent, which would by the nature of prepaid rent being an asset, appear on the balance sheet.

 

[Virgolady24]

Assets do go on balance sheet, Yep

 

[Triest123]

"Prior to the start of his business, he has secured an industrial unit for his workshop at a monthly rental of £450"
What does this sentence mean? Does it mean the workshop is rented at £450 per month or the industrial unit is rented ? Should this amount be written into balance sheet? Is it a prepaid rent?

=> It means the owner has signed a "personal guarantee" for the monthy rental charge
of the industrial unit which is used as the workshop (i.e. for business purpose)
In other words, if the business is unable to pay rent to the Landlord of the
industrial unit, then the owner is liable to pay the rent.

So this £450 is not a prepaid rent.