Year-end · Level: Exam specials
Journal entry: Prepaid rent at year end
Rent for next year was paid and expensed already. The part for next year is moved to Prepayments at 31 December.
Worked example
On 1 October, rent for October to March (6 months × £550.00) was paid in advance and booked as Rent. Book the year-end adjustment at 31 December.
Correct journal entry
Prepayments £1,650.00 / Rent £1,650.00
Debit
Prepayments£1,650.00
Credit
Rent£1,650.00
Why?
- Prepayments: asset increases → debit
- Rent: expense reduced → credit
Calculation
- 3 months belong to next year: 3 × £550.00 = £1,650.00
Typical mistake
Deferring the whole amount instead of just next year’s months.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
On 1 December, rent for December to May (6 months × £2,000.00) was paid in advance and booked as Rent. Book the year-end adjustment at 31 December.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for prepaid rent at year end?
Example: Prepayments £1,650.00 / Rent £1,650.00.
How do I recognise this case?
Rent for next year was paid and expensed already. The part for next year is moved to Prepayments at 31 December.
What is the typical mistake?
Deferring the whole amount instead of just next year’s months.