What is the journal entry to record prepaid rent?
Prepaid rent is a current asset (unless you prepay for more than 12 months of future rent) and it occurs when the company pays cash for future rent. Since they have not yet incurred the rent expense, the company should record an asset as they will be able to benefit in the future.
The visual below shows that if we were to prepay 6 months of rent at $100 per month, that would result in a debit to prepaid rent of $600 and a credit to cash (since cash was used to pay the landlord).
Then, when we actually owe our first month of rent, we would debit rent expense for $100 and credit prepaid rent. The credit to prepaid rent reduces the asset since we needed to record the expense. The same entry would be recorded for the next 6 months until prepaid rent was $0.
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