Deferred Expense (Prepaid Expense) Example

Example 4

On December 1, 20x1, Entity D paid $12,000 for the rent covering a 6-month period from December 1, 20x1 to May 31, 20x2. Prepare journal entries on the following dates:

December 1, 20x1

Prepaid rent

12,000

   Cash

12,000

[Note]

$12,000 cash paid on December 1 is prepaid expense, since the entity did not use office space yet.

December 31, 20x1

Rent expense

2,000

   Prepaid rent

2,000

[Note]

Rent expense for December 20x1 is recognized.

Monthly rent expense = $24,000 / 6 months = $2,000