Interpreting debit and credit balances in receivable accounts Steps:

• Identify account types: Commission and rent receivable are asset accounts for income owed to the business.
• Analyze commission receivable £250 debit: Debit balance means income earned but unpaid, so outstanding (accrued).
• Analyze rent receivable £500 credit: Credit balance means income received but unearned, so prepaid (advance, treated as liability).
• Match to options: Outstanding for commission, prepaid for rent corresponds to choice C.

Why C is correct:

• Follows accrual accounting rules where debit balances in receivables indicate accrued (outstanding) income, and credit balances indicate unearned (prepaid) income.

Why the others are wrong:

• A: Assumes both outstanding, but rent's credit balance indicates prepaid, not outstanding.
• B: Assumes both prepaid, but commission's debit balance indicates outstanding, not prepaid.
• D: Reverses the interpretations, assigning prepaid to debit (commission) and outstanding to credit (rent).

Final answer: C