TechnolOntario has completed their first year of business. Recall that in accordance with his lease, Jean paid the first year of their rent in advance ($36,000). At the time, this economic event was entered in their financial statements as a debit for assets for prepaid rent expenses, and a credit for cash assets. Now that the year is complete, the expense of their rent must be recorded (i.e., now that the prepaid rent has been“spent,” it is no longer an asset).
The journal entry would record this as a $36,000 debit for a rent expense and a $36,000 credit for an asset for prepaid rent expenses.
The financial statements would read:
To demonstrate how various business transactions and other economic events impact the financial statements, this series tracks the accounts of the first fiscal year of a fictional startup company called TechnolOntario, Inc. Common financial events are introduced and recorded one by one, and they accumulate on the financial statements as TechnolOntario’s fiscal year progresses.
Note that together these examples form a series of 29 articles. Check our complete list of accounting examples to specifically select which ones you’d like to see. Or you can follow the series from start to finish. This article is part 29 of 29.
Markle, K. (2004, August). Introduction to Accounting. Presentation delivered at Schulich School of Business, York University, Toronto, Canada.