On January 1,the Sleepy Monk Coffee Shop paid $24,000 for a full year of rent beginning on January 1.The rent payment was appropriately recorded in the Cash and Prepaid Rent accounts.If financial statements are prepared on January 31,the journal entry to record the adjustment would be:

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When the company first made the payment,it provided an economic resource to the company (building space for twelve months),so it was initially recorded as an asset called Prepaid Rent.At January 31,one month has passed.The adjusting entry will include a debit to Rent Expense (to increase this expense account)and a credit to Prepaid Rent (to decrease this asset account)for $2,000 [or ($24,000 ÷ 12 months)× 1 month].

On January 1,the Sleepy Monk Coffee Shop Paid $24,000 for a Full