What was the journal entry for prepaid rent which has paid at beginning of the month for the whole year and entry at the end of month ?? Which is entry affects the networth??

Question

Accepted Answer

Journal entry for prepaid rent paid at beginning and end of month affecting net worth.

Debit prepaid rent account for the full amount paid at the beginning of the month
Credit cash account for the same amount
At the end of the month, debit rent expense account for the portion of rent used during the month
Credit prepaid rent account for the same amount
The entry at the end of the month affects the net worth as it reduces the prepaid rent asset and increases the rent expense
Example: Debit prepaid rent $12,000, credit cash $12,000 at beginning of year. Debit rent expense $1,000, credit prepaid rent $1,000 at end of each month.

Accepted Answer

When prepaid rent is paid at the beginning of the month for the whole year, the journal entry is typically as follows:

1. **At the Beginning of the Month (Payment for the Whole Year):**
   - Debit: Prepaid Rent (Asset)
   - Credit: Cash or Bank

This entry records the prepayment of rent for the entire year. Prepaid Rent is an asset account on the balance sheet, representing the amount paid in advance for future periods.

2. **At the End of the Month (Adjustment Entry):**
   - Debit: Rent Expense (Income Statement)
   - Credit: Prepaid Rent (Asset)

This adjustment entry is made at the end of each month to recognize the portion of prepaid rent that has been "used up" or expired during that specific month. Rent Expense is an income statement account, and by debiting it, you are recognizing the expense for the month. The credit to Prepaid Rent reduces the asset on the balance sheet.

**Effect on Net Worth:**
- The adjustment entry at the end of the month affects the net worth indirectly through the impact on the income statement. As Rent Expense is recognized, it contributes to the total expenses for the period, reducing the net income. Since net income is a component of net worth, this adjustment indirectly affects the overall net worth of the business.

It's important to note that while the prepaid rent is an asset, it doesn't directly impact net worth until it's recognized as an expense over the periods to which it relates. Adjusting entries ensure that the financial statements accurately reflect the economic reality of the business.

Accepted Answer

Prepaid rent @/c. Dr

Accepted Answer

First entry being debit prepaid rent and credit to bank and second entry at the end of the month would be debit rent expense and credit to prepaid rent. Second entry would affect the networth

What was the journal entry for prepaid rent which has paid at beginning of the month for the whole year and entry at the end of month ?? Which is entry affects the networth??

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