Journal entry of Rent received in advance and Accrued Rent
Table of Contents
ToggleJournal entry of Rent received .
What is rent received?
In accounting, “rent received” means that the revenue earned by a company or a person from renting out property or any assets to its tenants. This type of income is typically categorized as rental income and is recognized when the rent is actually received, not when the agreement is made, or the service is provided between parties.
This type of income is recognised as accrual basis of accounting.
Rent received is income by nature
Income Is money received regularly for work ,interest or for services provided. Rent received is income because its for service provided to the tenant for providing room, house etc. Income is recurring in nature.
Nature of income is nominal accounts.
Golden of nominal accounts,
NOMINAL ACCOUNTS |
Debit all expenses and losses |
Credit all income and gains. |
Rent is income therefore, it will be credited when rent is received.
Example :
Rent received from tenant Rs . 25000/ by cash
Journal entry for rent received will be,
Cash A/c Dr. | 25,000 |
To Rent Received A/c | 25000 |
(being rent received ) | |
Rent received is shown in the profit-and-loss accounts .they showed it in the credit side of Profit and loss accounts as credit side of profit-and-loss accounts show all indirect income of business .
Note : It our business is of renting under such condition rent will be shown in trading accounts because then it’s our direct income.
Rent received in profit-and-loss accounts
Particular | Amount | Particular | Amount |
By rent received A/c | 25000 |
Journal entry Rent received in advance
Rent received in advance
There are some cases when we received rent before the due date of rent under such condition rent received is advance .
When any income received in advance that becomes our liability
Why is advance income liability?
Under the accrual method of accounting, income that is received in advance is a liability because the company that received the money has not yet earned it and it has an obligation (a liability) to deliver the related goods or services in the future.
Rule for assets and liability in accounting
Assets | Debit | Credit |
Liability | Credit | Debit |
ADD | Minus |
Note :If we have to increase or add assets, we have to debit it. And if we have to increase liability, we have to credit it .
Note in our case rent received in advance is liability therefore, it will be credited.
Example:
Pooja received Rent Rs 25,000 actual rent Rs 20,000.
Note : In this case, the rent received is 25000, which includes Rs 5000 advance rent, which is our liability.
The journal entry for the above will be:
Particular | Amount |
Cash A/c Dr. | 25,000 |
To rent received A/c | 20,000 |
To advance rent/Unearned rent a/c | 5,000 |
We also known advance income as unearned income.
Example :
Trial balance for the year ending …..
Particular | Amount | Amount |
Rent received a/c | 140,000 |
- Rent receives include Rs 20,000 advance rent .
Now we have to make journal entry.
Particular | Amount |
Rent received A/c | 20,000 |
To Advance rent received A/c | 20,000 |
We adjust our rent here now.
Advance rent is liability therefor we will deduct it from profit-and-loss account as we show it in the balance sheet asset side .if there is change of rent received at the end of accounting year.
Rent received in profit-and-loss accounts
Particular | Amount | Particular | Amount |
By rent received A/c 140000 – Advance rent received a/c 20,000 | 140,000 |
Rent received in balance sheet
Rent is liability
Liability | Amount | Assets | Amount |
Advance rent | 20,000 |
Journal entry of accrued rent
Accrued rent or rent :
Accrued income is money that’s been earned but has yet to be received
There are some cases when we not received rent till due date of rent under such condition rent received will be accrued rent .
When any accrued income is liability ?
Accrued income is listed in the asset section of the balance sheet because it represents a future benefit to the company in the form of a future cash payout.
. Note :If we have to increase or add assets, we have to debit it.
Journal Entry of Accrued Rent
Example:
On December 31st 2021 Company calculated 10,000 as rent earned but not received for 2 months from Jan 20 to Dec 20.
Particular | Amount |
Accrued Rent | 10,000 |
To rent received A/c | 10,000 |
(being accrued rent) | |
Example :
Trial balance for the year ending …..
Particular | Amount | Amount |
Rent received a/c | 140,000 |
- Accrued rent Rs 20,000.
Now we have to make journal entry.
Particular | Amount |
Accrued Rent A/c | 20,000 |
To Rent received A/c | 20,000 |
We adjust our rent here now.
Accrued rent is Asset therefor it will be added to profit and loss account as it is shown in the balance sheet asset side .if there is adjustment of rent received at the end of accounting year.
Rent received in profit-and-loss accounts
Particular | Amount | Particular | Amount |
By rent received A/c 140000 – + Advance rent received a/c 20000 | 160,000 |
Accrued Rent or rent not received in balance sheet
Accrued Rent is Asset
Liability | Amount | Assets | Amount |
Advance rent | 5000 |
Journal entry of Rent with GST
TDS on Rent will be deducted if receipt of rent exceeds Rs.120000/- p.a. Rate of TDS is 2% flat. This is applicable in case of individual or huf if turnover exceeds Rs.40 Lacs or gross receipts exceeds Rs.10 Lacs.
TDS is deducted by party we need to provide bll.
A bill of rent Rs 100000 with GST 18% raised .
Particular | Amount |
Rent A/ c Dr | 200000 |
CGST A/c | 18,000 |
SGST A/c | 18000 |
TO party | 236,000 |
GST on Rent @ 18%.
Inter-state Transaction:
Monthly rent collected by landlord Rs. 2, 00,000
Add: IGST @ 18% Rs. 36,000
Total Invoice amount Rs. 2, 36,000