Question

Why would a company pay 200,000 in prepaid rent year 1 but not pay any prepaid rent year 2? This is a general question

Answer 1

Answer. Prepaid rent is the rent paid in advance for future period for which services have not been taken in this period, and will be debited to rent expense in future period when the services will be used/taken.

In the current question when the company paid prepaid rent, there is an asset of prepaid rent of $200,000 and in next year company will not pay additional rent as rent has already been paid in advance last year and will debit the rent expense and credit the prepaid rent

Year 1. Prepaid rent Dr $200,000

To cash $200,000

Year 2 Rent expense Dr $200,000

To Prepaid rent $200,000