Final answer:
An adjusting entry of a $5,000 debit to Rent Expense and a credit to Rent Payable for the same amount is needed on December 31 to account for the rent owed by Z Company.
Step-by-step explanation:
The student's question pertains to the necessity of an adjusting entry for accrued expenses at the end of an accounting period. In this scenario, Z Company owes $5,000 in rent for the building it used in December, which it plans to pay in the future. To accurately reflect this expense in the period it was incurred, the company must make an adjusting entry on December 31. The entry would be a debit to Rent Expense for $5,000 and a credit to Rent Payable (or Accrued Rent) for $5,000. This entry effectively recognizes the rent expense in the income statement of December and records the outstanding liability on the balance sheet.
The adjusting journal entry on December 31 would be:
- Debit Rent Expense $5,000
- Credit Rent Payable (or Accrued Rent) $5,000