What is the journal entry for prepaid rent?
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Journal Entry
Prepaid Rent A/c Dr.
To Cash A/C
(Being rent paid in advance)
“Prepaid Account” is treated as an asset and as per the modern rules debit the increase in the asset.
“Cash Account” is an asset and as per the accounting rules credit the decrease in the asset.
Adjustment entry: The prepaid rent entry has an adjustment entry when the rent expense account is due. The journal entry for that is
Rent Expense A/c
To Prepaid Rent A/c
(Being the rent expense due and adjusted from the prepaid expense)
Example: ABC.Ltd signs a one-year lease on an office floor for Rs 10,000 a month. The landlord requires that the Company pays the annual amount Rs 120,000 at the beginning of the year.
The journal entry for Company would be as follows:
At the beginning
Prepaid Rent A/c – 1,20,000
To Cash A/c – 1,20,000
(Being rent paid in advance for the year)
At the time rent was due (Month 1)
Rent Expense A/c – 10,000
To Prepaid Rent A/c – 10,000
(Being the rent expense due and adjusted from the prepaid expense)
The same entry done in month 1 will be repeated in the next 11 months.