If an entity paid $200 for two months' rent in advance on 1 June and recorded it all as rent expense on that date, which of the following would be the necessary adjusting entry at 30 June?
A) Debit rent expense $100 and credit prepaid rent $100
B) Debit prepaid rent $100 and credit rent expense $100
C) Debit rent expense $200 and credit prepaid rent $200
D) Debit prepaid rent $200 and credit rent expense $200

Question

Quizplus · Accepted Answer

The correct adjusting entry is to debit prepaid rent $100 and credit rent expense $100. This corrects the initial overstatement of the rent expense by recognizing that $100 of the payment is for the future period (July), thus should be recorded as a prepaid expense as of June 30.

If an Entity Paid $200 for Two Months' Rent in Advance