THE TYPE OF ACCOUNT AND NORMAL BALANCE OF UNEARNED RENT IS

Overview

Under the accrual basis of accounting, revenue should only be well-known when it is earned. Likewise, once the firm receives the early on cash payment for the rental organization, it should record the cash got as unearned rent revenue in the journal entry.The nature of unearned rent is a liability which the agency owes to its client or customer in offering the rent. Likewise, recording the unearned rent as revenue will certainly outcome of the overstatement of revenue on the income statement and also the understatement of liabilities on the balance sheet.

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Unearned rent journal entry

The agency have the right to make the unearned rent journal entry by debiting the cash account and also crediting the unearned rent revenue account.AccountDebitCreditCash000Unearned rent revenue000Unearned rent revenue is a licapability account, in which its normal balance is on the crmodify side. Likewise, this journal entry is made to identify that the cash got from the early on payment of rent is not revenue however an unearned revenue.Later, when the rental residential or commercial property or tools is supplied for a period of time (e.g. one month), the agency have the right to identify revenue for that period by moving the amount in the unearned rent revenue account to the rent revenue account at the period end adjusting enattempt.In this case, the agency can make the journal enattempt with the debit of the unearned rent revenue account and also the credit of the rent revenue account.AccountDebitCreditUnearned rent revenue000Rent revenue000

Unearned rent example

For example, on December 29, 2020, the agency ABC receives an early cash payment of $2,000 for the rental building it provides to the client. The payment is for the rental fee in January 2021.

In this case, the company ABC demands to record the $2,000 of cash received as an unearned rent revenue in the journal enattempt on December 29, 2020.

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AccountDebitCreditCash2,000Unearned rent revenue2,000Later, on January 31, 2021, the company deserve to transfer the $2,000 of unearned rent revenue to rent revenue as the revenue is earned in January 2021.AccountDebitCreditUnearned rent revenue2,000Rent revenue2,000
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