Prepaid Rent (Accrual Based Accounting)
I am running a small business that prepays office rent on the 25th of each month (for the next month). I am using accrual based accounting with QuickBooks.
My question is, do I need to debit current assets/credit cash on the 25th of each month and then debit expenses / credit current assets at the end of the next month FOR ALL 12 MONTHS? Or do I only need to do this in December when I balance the books for taxes?
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Your account entries are generally correct, but do note that the last transaction is a mixture of the balance sheet and income statement. If Quickbooks doesn't do this automatically then the expense must be manually removed from the balance sheet.
The expense should be recognized on the balance sheet and income statement when it accrues, and it accrues when the prepaid rent is extinguished when consumed by the landlord, so that is when the second entry in your question should be booked.
The cash flow statement will reflect all of these cash transactions immediately.
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