Overview

Under the accrual basis of accounting, revenue must only be recognized when it is earned. Likewise, once the company receives the early cash payment for the rental service, it need to record the cash got as unearned rental revenue in the journal entry.The nature that unearned rent is a liability which the company owes to its customer or customer in offering the rent. Likewise, recording the unearned rent together revenue will an outcome of the overstatement of revenue ~ above the earnings statement and also the understatement of liabilities on the balance sheet.

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Unearned rent newspaper entry

The firm can make the unearned rent newspaper entry through debiting the cash account and also crediting the unearned rent revenue account.AccountDebitCreditCash000Unearned rental revenue000
Unearned rental revenue is a liability account, in i beg your pardon its regular balance is top top the credit side. Likewise, this journal entry is do to acknowledge that the cash received from the beforehand payment of rental is not revenue however an unearned revenue.Later, when the rental residential property or equipment is supplied for a duration of time (e.g. One month), the company can identify revenue for that duration by transferring the quantity in the unearned rental revenue account to the rental revenue account at the duration end adjusting entry.In this case, the company can do the newspaper entry with the debit the the unearned rent revenue account and the credit transaction of the rental revenue account.AccountDebitCreditUnearned rent revenue000Rent revenue000

Unearned rent example

For example, ~ above December 29, 2020, the firm ABC receives very early cash payment of $2,000 for the rental residential or commercial property it gives to the client. The payment is for the rental dues in January 2021.

In this case, the firm ABC demands to document the $2,000 that cash obtained as one unearned rental revenue in the journal entry on December 29, 2020.

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AccountDebitCreditCash2,000Unearned rent revenue2,000
Later, on January 31, 2021, the firm can deliver the $2,000 of unearned rent revenue to rent revenue together the revenue is earn in January 2021.AccountDebitCreditUnearned rent revenue2,000Rent revenue2,000

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