What is Rent Received In Advance

Previously we studied about Prepaid Rent and Outstanding Rent, but here we will look into this topic that is What is Rent Received In Advance or Advance Rent Received.

Rent Received in advance is a Current Liability and categorized as Unearned Revenue or Income or Income Receivable for company like rental company to provide services e.g. Housing Facility, Building Facility, Car Facility, etc., to his tenant or renter who paid advance rent to rental company monthly or as a security or any other reasons as required by the rental company at the time of Rental Agreement.

Rent Received in Advance is an example of Deferred Income.

Rent Received In Advance Journal Entry

Let’us take an example of a Real Estate rental company which received advance rent Rs. 30000 (Per Month Rs. 10000) from renter for 5 Months, on 1^st October, 2018 then we record the following Entry as shown below:

                       Cash a/c   50000

                                    Advance Rent Received In Advance / Unearned Rent a/c   50000

(Rent Received in Advance Recorded)

Now at the end of Accounting Period ending on 31^st December, 2017, when the rental company actually rendered services to renter, then the company passed the following adjusting entry for the portion of unearned rent which is now actually earned as shown below:

                   Advance Rent Received / Unearned Rent a/c     30000

                                                                                          Rent Received a/c 30000

(Unearned Rent Now Earned at the end of Accounting Period)

Here Rent Received for 3 months (From October To December) = 3 X 10000 = Rs. 30000

ada2

Unearned Rent is shown on Balance Sheet under Current Liabilities of Liabilities And Equity Side.