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A company shows a $690 balance in prepaid rent in the unadjusted trial balance columns of the work sheet. the adjustments columns show expired rent of $245. This adjusting entry results in $200 decrease to net income.
Prepaid rent is defined as rent that has been paid prior to the rental period to which it applies. The first day of the month it covers is the due date for rent, which is typically paid in advance.
In order to mail the payment to the landlord and ensure that it arrives by the due date, the renter writes a check payment around the end of the preceding month. This is because the landlord typically sends an invoice several weeks in advance.
The payment would often show up in the tenant's income statement as a rent expense in that period because it was recorded and the check was cut in the month before the period for which the invoice was entered in the accounting software.
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