On December 31,2015 Winters Company's Prepaid Rent account had a balance before adjustment of $6,000.Three months' rent was paid in advance on December 1.The adjusting entry needed on December 31 is:

Question

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The adjusting entry needed on December 31 is to recognize the portion of the prepaid rent that has been used up or expired, which is equal to three months' worth of rent. This means Rent Expense should be debited (to recognize the expense) and Prepaid Rent should be credited (to reduce the balance to the amount that has not yet been used up). Therefore, the correct entry is Debit Rent Expense $2,000; credit Prepaid Rent $2,000. Option A cannot be correct because it would reverse the original entry, which recognized the prepayment. Option B is incorrect because it involves creating an account payable, which is not relevant since the rent was already paid in cash. Option D is incorrect because it would increase the balance of cash, which is not appropriate for an adjusting entry. Option E is incorrect because it involves creating an account payable, which is not relevant since the rent was already paid in cash.

On December 31,2015 Winters Company's Prepaid Rent Account Had a Balance