[accountingmajor]

Here I have a question regarding journal entries. For the month of December 1st. There is a transaction where a company has paid rent for the month of December and January for $2500.

Do I put an entry for a debit of rent expense for 2500 and a credit for cash for 2500?

I am confused to what I should do next, should I have another transaction in my adjusting entry for the rent paid for January...

If someone can please advice me on this issue...

Thanks.

[morgaine300]

Your original entry should debit Prepaid Rent. Whenever you pay beyond the current month, put it into a prepaid account.

At the end of both December and January, you will need to make an adjusting entry for the expense portion that belongs to that month, i.e. 1250 each, by debiting rent expense and crediting the prepaid rent.

[accountingmajor]

Okay... I think I got this one..

Here are my entries:

JE
12/1
Dr Prepaid Rent 1250
Cr Cash 1250

Adjusting Entry
12/31
Dr Rent Expense 1250
Cr Prepaid Rent 1250

***I'm not to sure... But from what I got above, I think it is how you do this.

[morgaine300]

The adjusting entry for 12/31 is correct.

However, on 12/1, both December and January were paid. If you only record December's, there is no point to putting it into prepaid to begin with. You only need to do that when it goes into the future, and January is also in the future. Put the entire 2500 into the prepaid. (And the entire 2500 came out of cash, right? In fact, the whole point is that you paid 2500 and have to account for it somehow, even though it's something for the future.)

Then when 12/31's adjusting entry is made, you will have 1250 left in the prepaid account, which belongs to January -- and is still "prepaid" for January cause it hasn't come yet.