Question

On November 1, 2019, Peaches Consulting Service paid $4,800 for 12 months of advance rent on its office space. The correct adjusting entry on December 31, 2019, to show the amount of rent that had expired would include:

Answer 1

Answer:

Debit Rent expense $800

Credit Prepaid rent  $800

Explanation:

When rent is paid in advance, an asset is reduced while another is increased. The entries required are debit to prepaid rent and a credit to cash account. As the rent expires, the expense is recognized by debiting rent expense and crediting prepaid rents.

Rent expense as at 31 December 2019

= 2/12 * $4,800

= $800