The expense in the income statement reduces the net income which reduces the retained earnings and therefore the owners equity in the business.įurther details on the treatment of pre paid rent can be found in our prepaid expenses tutorial. In this case the asset (pre paid rent) has been reduced by 1,000 and the income statement has a rent expense of 1,000. This journal would be repeated at the end of May and June until the pre paid rent of 3,000 has been charged as an expense to the income statement and the pre paid rent account balance has been reduced to zero. At the end of April, only two months (May and June) have now been paid in advance The pre paid rent (asset) has been reduced. The business had use of the premises for one month, and this is now an expense for the month of April. ![]() Prepaid Rent Bookkeeping Entries Explained Prepaid rent journal entry – Rent expense for April Account This must now be become an expense in the income statement for April, the pre paid rent accounting is as follows: Rent prepayment for the period = 3,000 x 1/3 = 1,000 The rent repayment is calculated as follows. Prepaid Rent Journal EntryĪt 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. 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. For this transaction the Accounting equation is shown in the following table. The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the equity of the business This is true at any time and applies to each transaction. The pre paid rent account is a balance sheet account shown under the heading of current assets.Ĭash went out of the business to make the prepayment. The business has paid the rent in advance and has the right to use the premises for the following three month period of April, May, and June. ![]() Prepaid Rent Payment Bookkeeping Entries ExplainedĪn asset came into the business. Prepaid rent journal entry – Cash paid Account
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |