Question

paid rent of the factory, in which all accounts will it be recorded?
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Answer 1

Answer:

If the lessee paid the rent in advance for one year, the accounting journal entry: Debit- Prepaid Rent 12K$ and Credit- Cash on Hand (if paid in cash) or Cash in Bank (if paid by check) for 12K$. Since it is a prepayment, the accountant must adjust the prepayment account monthly by 1k via the following entry: Debit-Rent Expense 1K$ and Credit-Prepaid Rent 1K$. The adjustment must be done on a monthly basis until the 12K$ prepayment is fully expended. If there is a balance on the prepayment at the end of the accounting period, it should be recognized as a current asset in the balance sheet, while the total rent expense should be recognized as operating expense in the income statement.

The second scenario: the lessee pays the lessor monthly rent. The Accounting Journal Entry for each payment: Debit: Rent Expense 1K$ and Credit: Cash in Bank (if via check) or Cash On Hand ( if by cash) 1K$. If at the end of the accounting period, there exist unpaid monthly rent for three (3) months and the bill is received, the accountant must recognized the expense and the corresponding liability. The Adjusting Journal Entry: Debit-Rent Expense 3K$ and Credit-Accrued Expense Rent Payable 3K$. The adjusting entry will reflect the correct amount of rent expense for the period. It should be treated as an operating expense in the Income Statement. The Accrued Expense Rent Payable will be reported as current liability in the Balance Sheet. So, in total, the adjusted Rent expense and Liability reflect the true result of operation and the financial condition of the business at the end of the accounting period. At the subsequent period, the Adjusting Journal Entry must be reversed as follows: Debit -Accrued Expense Rent Payable 3k$ and Credit Rent Expense -3K$. When, the outstanding rent is paid, the accounting journal entry is as follows: Debit Rent Expense 3K$ (to zero out the negative balance brought about by the reversing entry) and Credit either Cash on Hand or Cash in Bank 3K$.