You're clearly the most learned and/or the most helpful poster on these boards... I became a member to ask you this simple question regarding adjustments:

Company X has rented its showroom and office space from Z at 7,000 per month for the last 3 years. The rent for January, 2007, was paid in advance on 12/29/06.

It is assumed that this transaction was recorded (prior to 12/31), however, no Prepaid Rent exists on the books. As a result, I am aware that I must create this account and debit 7000 to it. My question is... what do I credit? I'm guessing cash has already been credited if the transaction has previously been recorded and I can't credit the Rent Expense because it hasn't been used up yet --- what basic principle am I missing? Thanks.

If we are to assume that this transaction was recorded prior to 12/31/06, then I would assume it was recorded as:

Dr. Rent Expense 7,000
Cr. Cash 7,000

I would check over Rent Expense of 2006 to see if that is what happened.

If it is…
Then what you need to go is go back and make an adjusting entry for 2006 of:
Dr. Prepaid Rent 7,000
Cr. Rent Expense 7,000