The Metropolitan Bakery paid $12,000 in advance for six months of rent.Which of the following records this transaction?
A) dr Cash and cr Unearned Rent for $12,000
B) dr Prepaid Rent and cr Cash for $12,000
C) dr Cash and cr Prepaid Rent for $12,000
D) dr Rent Expense and cr Cash for $12,000

Question

Quizplus · Accepted Answer

The transaction involves the payment of rent in advance, which means that it falls under prepaid expenses. Therefore, the proper journal entry would be to debit Prepaid Rent (asset account) and credit Cash (asset account) for $12,000. Option A is incorrect because unearned rent is a liability account that involves receiving payment in advance for services that are yet to be delivered. Option C is incorrect because cash is decreasing, and prepaid rent is increasing, which doesn't reflect the transaction. Option D is incorrect because rent expense is an expense account that involves recording the cost of renting space at the time when the rent is due, not in advance.

The Metropolitan Bakery Paid $12,000 in Advance for Six Months