When rent is paid in advance for 2 years, it is appropriately recorded as a asset.
When a rent is paid in advance, this is prepaid rent, it is an asset account. So in this account the normal balance is on the debit side. Thus, in this journal entry, the net impact on the balance sheet is zero as one asset (prepaid rent) increases while the another asset (cash) decreases.
The prepaid expenses are recognized as future expenses that are paid in advance, which can be rent or insurance. On the balance sheet, prepaid expenses are first recorded as an asset.
Hence, as the benefits of the assets are realized over time, the amount is then recorded as an expense.
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