June 1: Rented office space and paid three months’ rent in advance, $3,000,
cheque 601.
Ans: Rent expense (DEBIT)
Cash (CREDIT)
adjustment:
a) One month’s rent had expired.
i think it will be:
prepaid rent (DEBIT $2000)
rent payable (CREDIT $2000)
CAN U CHECK IF THESE ARE RIGHT PLZ! THNX
The rent is only expensed when it used.
When you pay for rent in advance you are paying for prepaid rent.
Entry #1
Prepaid Rent, $3,000 Debit
Cash, $3,000 Credit
Adjustment Entry #1 at End of Month
Rent Expense (Debit 1/3th of $3,000)
Prepaid Expense (Credit the value above)
Hope I helped.
Hey!!! thnx zeeshan...this gave me the opportunity to edit my other entries similar to this...thnz ^_^
Based on the information provided, here are the correct journal entries for the original transaction and the adjustment:
Original transaction:
1. Rent expense (debit) $3,000
Cash (credit) $3,000 (cheque 601)
Adjustment:
1. Prepaid rent (debit) $2,000
Cash (credit) $2,000
2. Rent expense (debit) $1,000
Prepaid rent (credit) $1,000
Explanation:
- The original transaction correctly records the payment of $3,000 for three months' rent.
- The adjustment is needed because one month's rent has expired. This means that $1,000 of the prepaid rent will be moved from the prepaid rent account to the rent expense account.
- The first entry in the adjustment records the decrease in prepaid rent (debit) and the corresponding decrease in cash (credit).
- The second entry in the adjustment records the expense incurred for the expired month's rent (debit) and the decrease in prepaid rent (credit).
So, to summarize, the correct journal entries are:
1. Rent expense (debit) $3,000
Cash (credit) $3,000 (cheque 601)
Adjustment:
1. Prepaid rent (debit) $2,000
Cash (credit) $2,000
2. Rent expense (debit) $1,000
Prepaid rent (credit) $1,000