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Suppose a company rents office space for one year, paying $27,000 ($2,250/month) in advance on September 1. Record the adjusting entry on December 31

User Nrob
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On September 1, the company would debit Prepaid Rent for $27,000 and credit Cash for $27,000. By December 31, four months have passed, so the company has used up $9,000 of the prepaid rent ($2,250/month * 4 months).

The adjusting entry on December 31 would be to debit Rent Expense for $9,000 and credit Prepaid Rent for $9,000. This recognizes the rent expense for the period and reduces the prepaid rent asset by the amount used.
User Jesse Atkinson
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