Rent Payable Journal Entry Example

Under the accrual basis of accounting, the company should only record the revenue when it is earned. Likewise, the rent received in advance is recorded as a liability due to the lessee or tenant has not used the property yet when the company receives the cash for rent. Rent payable incurs when the company records rental expense and does not yet make any payment to the property owner. The journal entry is debiting rental expense and credit rent payable. Company ABC has the obligation to pay a rental fee to the property owner after receiving the invoice.

Journal entry for income received in advance recognizes the accounting rule of “Credit the increase in liability”. Then, when we actually owe our first month of rent, we would debit rent expense for $100 and credit prepaid rent. The credit to prepaid rent reduces the asset since we needed to record the expense. The same entry would be recorded for the next 6 months until prepaid rent was $0. The customer deposit will sit on the company balance sheet under the liability section.

Journal Entry for Rent received with TDS & GST

Such advances received are treated as a liability for the business. In this journal entry, both total assets and liabilities on the balance sheet increase by $15,000. Accrued rent receivable is the amount of rent that a landlord has earned, but for which payment from the tenant is still outstanding. This entry is made as part of the closing process at the end of each reporting period.

Sometimes the customer paid the rental fee in advance, they paid before consuming the rental from company. So we cannot record the revenue immediately, the company should record revenue after giving service to the customer. If the security is kept and returned to the customer at the end of the contract. The company will have to inspect the property at the end of the contract and if nothing is wrong, the company will reverse the cashback. Based on the term and conditions, the deposit may be used to settle the rental fee in the last rental period. If so, the company has to revere the customer deposit (liability account) to revenue on the last period.

Accrued rent receivable definition

When you collect money for rent that you’ve already recorded as income, debit the cash account by the amount collected and credit the rent receivables account by the same amount. The credit reduces rent receivable to show that the tenant no longer owes that money. Using the previous example, on the fifth of the month, debit $4,000 to cash sell you out and credit $4,000 to rent receivable to correctly make the journal entry of rent received. Later, when we receive the rent payment, we can make another journal entry to clear the rent receivable that we have recorded previously. This can be done with the journal entry of debiting the cash account and crediting the rent receivable account.

• The accounting period followed by ABC Ltd is from January to December.
• On December 30, XYZ Ltd. received office rent from its tenant in cash of $45,000 (15,000 x 3) for the next three months, i.e., January, February, and March.
• Note in our case rent received in advance is liability therefore, it will be credited.
• On the 15th of March, Unreal Corporation paid a rent of 10,000 (in cash).

‘Income received in the advance’ account is debited to record the entry. We are recording the journal entries in the books of Hit Company. Let’s learn how to record journal entries first by following the below steps.

Accrued rent revenue example

The company needs to prepare a monthly financial statement, please prepare a journal entry for month-end. Rent is income therefore, it will be credited when rent is received. Tenant – The party who rents the property and pays rent to the landlord is called ‘tenant’. Such advances received are treated as a liability by the business. Rent paid will be debited with corresponding Credit to the Bank Account, if paid immediately, or Credit to the Rent Liability, to record the accrual entry. The accounts involved in this example are Asset, Liability, and Expenses.

But the company not yet making payment, so they have to record the liability which is accounts payable. They have to record rental expenses as well because they consume the rental service during the month. Rental is the expense that company spends on the property to use for setting up the office, warehouse, shop, or any other purpose. It will be recorded as the operating expense on the income statement.