Which of the following items is considered an explicit transaction in financial accounting?

• A. Payment of rent to a landlord
• B. Recognition of depreciation expense
• C. Estimation of bad debt expense
• D. Accrual of interest revenue

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of explicit transactions in financial accounting. Explicit transactions are those that involve a clear, observable exchange of value between entities, such as cash payments or receipts.
2. Step 2: Analyze each option provided in the problem to determine whether it involves an explicit transaction. Explicit transactions typically involve physical or monetary exchanges.
3. Step 3: Evaluate 'Payment of rent to a landlord.' This involves a direct cash payment to the landlord, making it an explicit transaction.
4. Step 4: Evaluate 'Recognition of depreciation expense.' This is an accounting adjustment to allocate the cost of an asset over its useful life, which does not involve a direct exchange of value, so it is not an explicit transaction.
5. Step 5: Evaluate 'Estimation of bad debt expense' and 'Accrual of interest revenue.' Both are accounting estimates or adjustments that do not involve a direct exchange of value, so they are not explicit transactions.