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Nistha
Nistha
In: 1. Financial Accounting > Journal Entries

Can you explain rent received in advance with journal entry?

Can you explain rent received in advance with journal entry?
Journal EntryRentRent Received in Advance
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    1. Simerpreet Helpful CMA Inter qualified
      2021-06-22T15:38:56+00:00Added an answer on June 22, 2021 at 3:38 pm
      This answer was edited.

      Before starting with the main discussion, let me give you a brief explanation of what rent received is

      When a business or an organization rents out its unused property to earn some extra income and receive some amount from it, that amount of money is said to be rent received.

      Rent can be monthly, quarterly, half-yearly, or yearly rent depending upon the organization’s agreement.

      The journal entry for rent received will be

      Here, Cash account is debited due to the increase in assets or because of a real account. Rent account is credited due to the increase in income or because of the nominal account.

      However, Rent received in advance means the amount of rent that is not yet due but is received in advance. It is treated as a current liability because the benefit related is yet to be provided to the tenant.

      The Journal entry for Rent received in advance will be-

      Here, rent is debited due to a decrease in income.

      Rent received in Advance is credited due to an increase in liability.

      For Example, Johnson company rented out a part of its building that was not used to earn some extra income from it. The monthly rent was fixed as 20000. Johnson company follows calendar year as their accounting year. The tenant, therefore, paid 4 months advance rent to Johnson company i.e. the tenant in January gave his advance rent for February, March, April, and May.

      While receiving the rent in the month of January. The journal entry would be

      Now, the adjustment entry of rent received in advance would be

      The rent received in advance will also be posted individually in each month of February, March, April, and May as

      Furthermore, Rent received in advance is deducted from the amount of rent in the income and expenditure account and thereafter the amount received in advance is posted on the liability side of the Balance sheet.

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