Prepaid expenses are future expenses that have been paid in advance. How long did you pay for rent in advance? Prepaid rent expense is an asset account, because the prepaid portion of rent represents future economic benefits. Prepaid interest kind of assets. You must adjust the account at the end of each payment period to keep your records current using a deferral adjusting entry. Prepaid rent expense exists as an asset account that indicates the amount of rent a company has paid in advance. See More Related Questions. Prepaid rent is rent paid in advance of the rental period. Prepaid rent is shown as a current asset in the company's balance sheet. Following accounting entry is required to account for the prepaid expense: Debit- Prepaid Expense (Asset) & Credit- Cash/Bank. Prepaid Rent/Assets. Start studying ACC 201 CH 2. Accounts Payable. If you forget to move the prepayment into the rent expenses account in the month to which the rent relates, your financial statements will over-report the asset and under-report the expense. But let’s say you paid for 3 years up front. Rent expense from October 1 to December 31, 2018 = 12,000 x 3/12 = $3,000 Prepaid rent has decreased by the same amount over that time period. In this case one asset (pre paid rent) has been increased by 3,000 and the other (cash) has been reduced by a similar amount. B. asset use transaction. Prepaid lease is recorded as an asset when a corporation makes a prepayment of rent to a landlord or a 3rd-get together. Prepaid Rent is an asset account while Rent Expense is an expense account which are both related to rental payments. Dr. Prepaid Rent/Assets. The rent repayment is calculated as follows. For example, at the end of the six months of insurance coverage, you will have fully expensed your account and will have a balance of $0 in your prepaid insurance account. Unearned rent, or deferred revenue as it may be called, is an account for landlords only, not tenants. You may prepay a lawyer to retain the attorney over the course of a year. At the end of April one third of the prepaid rent expense (1,000) will have been used up as the business has used the premises for that month. The adjusting journal entry for a prepaid expense, however, does affect both a company’s income statement and balance sheet. Examples of prepaid expenses. Related: 16 Accounting Jobs That Pay Well. Hence, the journal entry above is simply increasing one asset (prepaid rent) together with the decreasing of another asset (cash). Continue the above process until the prepaid asset has been fully realized. A prepaid asset is an expense that has already been paid for, but which has not yet been consumed. For instance, on 01 January 2019, ABC Co has paid US$50,000 for the office space to D Co, a property management company. When the rent is actually due: Dr. A current asset account that reports the amount of future rent expense that was paid in advance of the rental period. When the cheque is cut: Dr. Accounts Payable. The amount of the prepayment is carried on the books of the business leasing the property as a current asset account that will be expensed at some point in the future. The $2,000 you expensed for January’s rent appears on your income statement as rent expense, while your prepaid rent asset account is reduced by $2,000 on your balance sheet. Wages outstanding given in the trial balance will be treated as a (an): Prepaid rent given in the Trial Balance will be treated as :-What the difference between the deferred expense and the accrued expense? The amount reported on the balance sheet is the amount that has not yet been used or expired as of the balance sheet date. 27. In summary, when dealing with rent prepayments, store the prepaid rent as an asset on the balance sheet until the month in which the rent is consumed. As mentioned above, prepaid rent refers to the advance payment of rental for the right to use such rent over a period of time. In a prepaid lease, the seller converts one-time gain into periodic rental income over the lease term. What type of account is Prepaid Rent? A prepaid expense can be recorded initially as an expense or as a current asset. Cr. So, if XYZ Company paid the entire $27,000 annual rent in advance, it would debit the current prepaid assets for $27,000 and credit … Recording a Prepaid Expense. Prepaid rent is a payment made by the tenant in advance and is an asset. Other prepaid assets include fees paid to professionals, such as lawyers or accountants, and taxes. If you owe rent, that's a liability. They are recorded in books of finance at the end of an accounting period to show the true numbers of a business. 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