Accrued rent revenue journal entry
Overview
Revenue should be recognized when it is earned, regardless of the time of receiving cash. Likewise, the company should make the journal entry for the accrued rent revenue that it has earned during the accounting period.
Rent revenue is usually earned through the passage of time when the company leases or rents out the equipment or property to its lessee. Likewise, the amount of rent revenue will be accrued during the rent period. Hence, the company needs to record the accrued rent revenue that it has earned during the period in order to comply with the accrual basis of accounting.
Accrued rent revenue journal entry
The company can make the journal entry for the accrued rent revenue by debiting the rent receivable account and crediting the rent revenue account.
| Account | Debit | Credit |
|---|---|---|
| Rent receivable | 000 | |
| Rent revenue | 000 |
If this journal entry is not made, both total assets on the balance sheet and total revenue on the income statement will be understated.
When the company receives the rent payment, it can make the journal entry by debiting the cash account and crediting the rent receivable account.
| Account | Debit | Credit |
|---|---|---|
| Cash | 000 | |
| Rent receivable | 000 |
Accrued rent revenue example
For example, on January 01, 2021, the company ABC rent out available office space with a rental fee of $5,000 per month to its neighbor company for 3 years period.
In the agreement, the company ABC will receive the rental fee on the first day of each month starting from February 01, 2021, until the end of the agreement period.
In this case, at the period adjusting entry of January 31, 2021, the company ABC needs to make the journal entry for accrued rent revenue that it has earned in January 2021 for the office space rental fee.
Hence, the company ABC can make the accrued rent revenue journal entry in the January 31 adjusting entry with the amount of $5,000 as below:
| Account | Debit | Credit |
|---|---|---|
| Rent receivable | 5,000 | |
| Rent revenue | 5,000 |
If this journal entry is not made, the total assets on the balance sheet and total revenue on the income statement will be understated by $5,000 in January 2021.
Afterward, when the company ABC receives the cash payment from the rental fee, it can make the journal entry to eliminate the receivable it has recorded in January 2021 as below:
| Account | Debit | Credit |
|---|---|---|
| Cash | 5,000 | |
| Rent receivable | 5,000 |