Final answer:
A $17,000 advance payment for six months of rent is recorded as a prepaid expense, which is an asset on the financial statements. The transaction is recorded by debiting Prepaid Rent and crediting Cash for $17,000, with monthly adjusting entries for rent expense.
Step-by-step explanation:
When you pay $17,000 in advance for six months of rent, this transaction would be recorded in your financial statements as a prepaid expense. Prepaid expenses are considered assets because they provide future economic benefit. The entry in the accounting records would involve two accounts: Prepaid Rent (an asset account) and Cash (an asset account). The journal entry to record this transaction would be a debit to Prepaid Rent and a credit to Cash for $17,000.
The journal entry would look as follows:
Each month, an adjusting journal entry will be made to recognize the rent expense for that period. This is done by debiting Rent Expense and crediting Prepaid Rent for the amount pertaining to that month's usage, which would be $17,000 divided by 6 months, equating to $2,833.33 per month.