[JessRoja]

I'm confused on this transaction:

On January 2, Ida immediately rented office space for $2,500 per month and paid the first month and last month's bill.

My teacher is telling me there is 2 debits and one credit for the journal entry.

HELP!

[pready]

Think about this as two separate transactions. One for the first month of rent and one for the last month of rent.

Your accounts for the first month of rent will be Rent Expense and Cash because you are using the first month of rent.

Your accounts for the last month of rent will be Prepaid Rent and Cash because you will be using the last month of rent at some point in the future.

You can combine these two entries into one journal entry because only one payment is made for the first and last month of rent. This type of journal entry is called a compound journal entry and they are fairly common in accounting. One prime example is selling a used vehicle.

So your individual journal entries will be:
Debit Rent Expense for 2,500 and Credit Cash for 2,500 (for the first month of rent)

And;
Debit Prepaid Rent for 2,500 and Credit Cash for 2,500 (for the last month of rent)

Now your combined journal entry will be:
Debit Prepaid Rent for 2,500
Debit Rent Expense for 2,500
Credit Cash for 5,00 (for first and last month of rent payment)