Question

Suppose Hoosiers, a specialty clothing store, rents space at a local mall for one year, paying $25,200 ($2,100/month) in advance on October 1.

Answer 1

Journal entry refers to the primary record of transactions and event of an entity in chronological order during a specific period. Journal entry supports the preparation of subsidiary books.

Prepaid expense refers to the expenses paid in advance for a period. They appear in the balance sheet as assets of the entity.

Prepaid rent of Suppose Hoosiers is $22,800 in the month of October. In the month of December, the expense of 3 months will be recognized as the expense for the period.

Therefore rent expense will be:

The prepaid rent will be the rent paid for next year for the period between January to September:

Prepaid rent of $17,100 will appear in the asset side of the balance sheet.