On January 1, Power House Co. prepaid the annual rent of $15,400. Required: Prepare the journal entry to record this transaction on January 1. Refer to the Chart of Accounts for exact wording of account titles.

Debit Prepaid rent $15,400

Credit Cash account $15,400

Being entries to record cash paid in advance for rent.

Explanation:

When an amount is prepaid as rent, an asset is reduced while another asset is recognized, hence the net effect on the account equation is nil as the transaction is just the use of one asset to acquire another. The entries so required for this are;

Debit Prepaid rent $15,400

Credit Cash account $15,400

Being entries to record cash paid in advance for rent.