On September 1, the company pays rent for 12 months in advance and debits an asset account. At year-end, the adjusting entry on the work sheet would

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When a company pays rent in advance, it initially records the payment as a prepaid expense, which is an asset. As time passes and the rent period elapses, the company needs to recognize the expense associated with the use of the rented space. Therefore, at year-end, the adjusting entry would include increasing an expense account (Rent Expense) to reflect the cost incurred during the period and decreasing the prepaid asset account to show that the prepaid amount has been used.

On September 1, the Company Pays Rent for 12 Months