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Prepaid Rent XXX
Cash XXX
In the first3 months it would be,
Prepaid rent (Asset) DR $/3
Cash/Bank CR $/3
In the month of rent payment, it would be,
Rent Expense DR $
Prepaid rent CR $
Prepaid Rent
Cash/Bank
_________
Rent Expenses
Prepaid Rent
Prepaid Rent
Cash
Dr. RENT $
CR. Cash/Bank $
Excellent answer by Smitha Manoj so, I go with her.
There are two possible situations
I) If the advance rent is paid during the financial year.
Rent a/c. - Dr.
To Cash a/c.
ii) If the rent is paid at the time of end of financial year then we will pass the entry for rent payment and then we will transfer the amount of rent which we had paid in advance to the prepaid rent a/c.
Rent a/c - Dr
To Cash a/c
Prepaid Rent a/c - Dr
To Rent a/c.
the effect will be it will be deducted from rent a/c in profit & loss account and will be shown in asset side of balance sheet in current asset.
Dr. Advance rent $1,
Cr. Bank / Cash $1,
After three months Prepayment will be expense out e.g.
Dr. Rent, rates and taxes $1,
Cr. Advance rent / Prepayments $1,
In the3month Advance rent paid would be....
Prepaid Rent Account.....DR........ $0
Cash Account ...............CR $0
The Accounting Equation, Assets = Liabilities + Owners Equity
It depends. If the Company is following expense method of recognition, it will be debited to Rent Expense. If the Company is following asset method. The debit would be Prepaid Rent.
However, if the3 month period will fall within the same accounting period. It is advisable to debit the total amount to expense. No adjusting entry will be needed at the end of the period since the three months are occurred during the same period.
Depending on :
1- The three months are in the same fiscal year or not .
2- The company prepares monthly or quarterly financial statements or not .
