Outstanding rent of N300 is paid by the proprietor. The effect on the balance sheet is that
Answer Details
When outstanding rent of N300 is paid by the proprietor, it means that the proprietor has settled a debt owed to a third party (the landlord) using company funds.
The effect on the balance sheet is that both the liability and the asset are decreased. The liability decreases because the company no longer owes N300 to the landlord. The asset decreases because the company has spent N300 to settle the outstanding rent.
Therefore, the correct answer is (2) both the liability and asset are decreased.
both the liability and asset are increased, liability is increased while the asset is decreased, liability is decreased while the asset is increased, and both liability and asset remain unchanged are incorrect, as they do not reflect the correct accounting treatment for paying outstanding rent.