Question

On January 1, Power House Co. prepaid the annual rent of $13,300. Journalize this transaction. If an amount box does not require an entry, leave it blank. Jan. 1___.

Answer 1

To journalize the prepayment of annual rent, you should debit Prepaid Rent and credit Cash.

Step-by-step explanation:

To journalize the prepayment of annual rent, we need to use the accounting equation: Assets = Liabilities + Equity. In this case, a prepaid rent is an asset, as it represents a future economic benefit for the company. The transaction will be recorded as follows:

• On January 1, Debit Prepaid Rent for $13,300
• On January 1, Credit Cash for $13,300

By debiting Prepaid Rent, we increase the asset account, representing the future rent the company has paid. By crediting Cash, we reduce the asset account, as the company paid cash to prepay the rent.