Question

On October 1, Ace Sport of Toledo prepaid six months of rent, $3,900. Read the requirements. 1 Requirements Requirement 1. Record the journal entry for the October 1 payment. (Record debits first, then credits. Select the explanation on the last line of the journal entry Date Accounts and Explanation Debit Credit Oct. 1 1. Record the journal entry for the October 1 payment. 2. Record the adjusting entry required at October 31. 3. Using T-accounts, post the journal entry and adjusting entry to the accounts involved and show their balances at October 31. (Ignore the Cash account.) Print Done Requirement 2. Record the adjusting entry required at October 31. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Date Accounts and Explanation Debit Credit Oct. 31

Answer 1

Requirement 1 & 2

Date	Particulars	Debit ($)	Credit($)
Oct 1	Prepaid Rent	3,900
	Cash		3,900
	(To record payment of rent for 6 months)
Oct 31	Rent expense	650
	Prepaid rent (3900/6)		650
	(To record rent expense for the month)

Explanation

1. The concept is based on accrual approach. Whenever the rent services will be utilized, rent expense has to be recognized. Till then, any advance paid as rent has to be recorded as current asset i.e. prepaid rent. The payment of advance decreases the cash.
2. The rent has been utilized for 1 month and therefore, rent expense has to be recognized. The 1 month rent of 3900/6 = 650 is to be debited to prepaid rent and rent expense is shown in expense side.

Requirement 3

Prepaid rent

Description	Debit	Description	Credit
To cash	3900	By rent expense	650
Ending balance	3250

Rent expense Account

Description	Debit	Description	Credit
To prepaid rent	650
Ending balance	650