Journal entry of rent received in advance and accrued rent

Journal entry of Rent received in advance and Accrued Rent

What is rent received?

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

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