Question

Record the purchase of rent for one year, paying $25,200 ($2,100/month) in advance on October 1.

Answer 1

The purchase of rent for one year is recorded as a prepaid expense on the financial statements.

Step-by-step explanation:

The purchase of rent for one year, paying $25,200 ($2,100/month) in advance on October 1 is a business transaction. When a payment is made in advance for a service or asset, it is recorded as a prepaid expense on the financial statements. In this case, the rent expense would be recorded as a prepaid expense and gradually recognized as an expense over the course of the year.

To record the purchase of rent, you would make the following journal entry:

• Debit Prepaid Rent: $25,200
• Credit Cash or Bank: $25,200

This entry records the increase in the prepaid rent asset account and decrease in the cash or bank account.