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On November 1, a company pays a total of $9,000 in rent for November, December and January. What amount should the company record as rent expense in November and what is the balance in the Prepaid Rent account on December 31 (assuming no other transactions)?


Correct answer. The prepayment should be allocated equally to the relevant months, so the rent expense for each month is 1/3 of the total payment, or $3,000. Prepaid Rent is an Asset account that should contain the amount that has been paid for rent but not yet recognized as an expense. As of Dec. 31, two months of rent expense have been recognized (November and December), so the balance in the Prepaid Rent account should be the remaining one month.

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