Prepaid Asset

From the previous example, ABCD prepaid $65,000 of rent and classifies this advance payment as Prepaid Asset.

Dr. Prepaid Asset (Prepaid Rent) $65,000
Dr. Accrued Liability $30,000
Dr. Rent Expense (July 2015) $5,000
  Cr. Cash $100,000

ABCD offsets this prepaid asset balance by the rent expense for the subsequent months until the prepaid asset balance becomes zero. There could be situations where prepaid asset balance is more than what is due to be incurred as rent for the next 12 months. In these situations, any advance payment that is more than what is required to cover next 12 months rent will be classified as Long Term Prepaid Assets.

A credit entry in the prepaid asset account is usually entered while expensing the rent for the month. For example, ABCD will expense August 2015 rent as follows:

Dr. Rent Expense (August 2015) $5,000
  Cr. Prepaid Asset (Prepaid Rent) $5,000

See also:  

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