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Prepaid rent is an example of a deferral adjusting entry. It occurs when cash is paid before rent expense is incurred. Lets look at an example: Assume on January 1, Morrissey prepays $6000 for three months rent on a recording studio. Lets answer some of these questions. Whats the journal entry on January 1? Is this an adjusting entry? And what is the balance on the unadjusted trial balance for our prepaid rent account and our rent expense account? The journal entry on January 1 is a debit to the asset account, prepaid rent, and a credit to the asset account, cash, for $6000. This is not an adjusting entry because there is an underlying transaction that happened on January 1. So the unadjusted balance for prepaid rent at the end of the month is still $6000 and as of yet no rent expense has been recorded. Okay, so forget accounting for a second. We know that those balances arent correct. Morrissey is paid $6000 for three months so that would be $2000 a month. So we should expect to s
