On July 1, 2018, Charlie Co. paid $18,000 to Rent-An-Office for rent covering 18 months from July 2018 through December 2019. What adjusting entry should Charlie Co. record on December 31, 2018?

Dr Cr

Rent Expense $6,000

Prepaid Rent $6,000

Explanation:

Prepaid Expenses are the expenses of a firm which are not incurred but paid in advance. So they are recorded as assets and are expensed out when incurred.

Initial entry recorded by Charlie Co on July 1, 2018 would have been as:

Dr Cr Prepaid Rent $18,000 Cash $18,000

Lets calculate rent expense incurred for 6 months from July 1, 2018 to December 31, 2018

Rent Expense = ($18,000/18) 6 = $6,000

On December 31, 2018 Charlie Co would record adjusting entry for 6 months for rent expense incurred from July 1, 2018 to December 31, 2018 as:

Dr Cr Rent Expense $6,000 Prepaid Expense $6,000