Accrued Expenses are expenses that have been incurred but not yet paid or shall be recorded at the end of an accounting period. These expenses need to be recognized in the period in which they are incurred for match the expense with the related revenue, adhering to the matching principle in accounting. When we make the rent payment for the liability above, we can make the journal entry by debiting the rent payable account and crediting the cash account. Though we usually receive the cash in advance for the rental service that we provide, there may be a situation where we won’t receive any cash until some time has passed. In this situation, we still need to record our rental income in order to comply with the accrual basis of accounting.

Journal Entry to Record Accrued Interest

In this journal entry, we record the accrued rent income at the period-end adjusting entry in order to recognize our right to receive the rental fee in form of the cash payment on the balance sheet. At the same time, we also record this transaction to recognize the rent income on the income statement that we have already earned but have not received the cash payment yet. Under the accrual basis of accounting, we need to record the revenue that we have already earned on the income statement, regardless of when the cash payment is received. Likewise, when we have earned the rent income, e.g. from renting office space to the other party during the period, we need to record the accrued rent income for the period even though, for some reasons, we have not received the cash payment yet. We can make the journal entry for the accrued rent expense by debiting the rent expense account and crediting the rent payable account. Likewise, even though we have not received the cash payment yet, we still need to make the journal entry for the accrued rent income when we have already earned it.

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• Likewise, we need to make the journal entry for the accrued rent expense if it has already occurred but we have not made payment for it yet.
• This means that the receipt of cash from renters generally coincides with the period in which it is also recognized as revenue.
• From the perspective of the renter, a rent payment for the next month may sometimes be made at the end of the immediately preceding month.
• These are expenses that are recognized in the financial statements before the actual payment is made.
• This latter situation tends not to last long, since the renter will have violated the terms of the rental agreement, and can then be evicted.
• To record an accrued rent expense, a company would typically record a journal entry debiting the relevant expense account (e.g., “Rent Expense”) and crediting the corresponding liability account (e.g., “Accrued Rent”).

Likewise, on December 1, we have rented out this office space for a fixed fee of $2,000 per month to one of our friends who have a close business relationship with us. Suppose employees earned ₹50,000 in salaries for December 2024, but these will be paid in January 2025.

Accrued rent is the amount of unpaid rent owed by a renter or not yet collected by the landlord. The accounting for accrued rent from the perspectives of the landlord and the renter are noted below. ABC Corporation follows the accrual basis of accounting and has an accounting period that ends on December 31st. However, as the client has difficulty in their business, we agree to delay the payment until the first week of next month which is July. In this case, the client will need to make a $6,000 cash payment to us in the first week of July, in which the first $3,000 is for the June rental fee and another $3,000 is to cover the July rental fee.

Example of an Accrued Rent Expense

From the perspective of the renter, a rent payment for the next month may sometimes be made at the end of the immediately preceding month. In this case, the renter records a debit to the prepaid expenses (asset) account and a credit to the cash account. By recording the accrued rent expense, the company ensures that its financial statements accurately reflect its financial performance and obligations for the accounting period. These are expenses that are recognized in the financial statements before the actual payment is made. The journal entry for an accrued expense typically involves increasing the expense account and recognizing a liability. In this journal entry, both our total assets and total revenues increase by $2,000 as of December 31.

To record an accrued rent expense, a company would typically record a journal entry debiting the relevant expense account (e.g., “Rent Expense”) and crediting the corresponding liability account (e.g., “Accrued Rent”). Accrued rent expense is recorded on the company’s balance sheet as a current liability, often under the “Accrued Rent” or a similar account. Once the rent is paid, the accrued rent liability is reduced, and the cash account is debited. Accounting entry for accrued expenses is Expense Account Debit and Accrued Expenses Account Credit. When will be paid Accrued expenses then entry will be passed Accrued Expenses Account Debit and Cash/Bank Account Credit.

In business, we usually receive the cash payment in advance for the rental service, e.g. renting property such as office space or renting the plant asset such as a business car to another party. However, we may come across a situation where the clients request for the delay of rent payment to the next month period for some reasons, e.g. when the clients have financial difficulty, etc. When the renter is preparing its financial statements for the month to which the rent payment applies, the rent expense account is debited and the prepaid expenses account is flushed out with a credit, so that rent expense is recognized in the correct month. A renter frequently sets up a schedule of rent payments in its accounts payable software module, so that the same payment is made on the same day of each month until a predetermined termination date is reached. The same journal entry is automatically generated for each of these recurring payments, which greatly reduces the need to review the accuracy of accrued rent entries in each accounting period.

And as we need to close the year-end account on December 31, we need to also record the accrued rental fee that we have already earned for a month during December. In this journal entry, the debit of 1,600 rent payable is to eliminate the rent payable that we have recorded in January and February and the debit of 800 of rent expense is to recognize the rent expense that has incurred in March 2021. Since we follow the accrual basis of accounting, we need to record the $3,000 rent income that we have already earned at the period-end adjusting entry of June 30. Recording accrued expenses accurately and ensures that the financial statements provide a true and fair view of the company’s financial position and performance, adhering to the accrual basis of accounting. This journal entry is made to clear the $2,000 of the accounts receivable with the $2,000 cash that we have received on January 1.

Later, when we receive the cash payment for the rental service, we can make another journal entry to clear the receivables with the cash received. This is due to, under the accrual basis of accounting, the revenue should be recorded when is earned regardless of the time of the cash received. And in accounting, the rental income or rental revenue is earned through the passage of time.

Likewise, if we do not make this journal entry of accrued rent income, both total assets on the balance sheet and total revenues on the income statement will be understated by $2,000. In this journal entry of accrued rent income, both total assets on the balance sheet and total revenues on the income statement increase by the same amount. Later, when we receive the cash payment for our rental equipment or property, we can make a journal entry to clear the accounts receivable with the debit of the cash account and the credit of accounts receivable. For example, at the period end of June 30, we have not received the $3,000 cash payment of the June rental fee for the office space rent yet, due to the client’s financial difficulty during the period.

Hence, at the end of the accounting period, we should have earned a portion of rent income regardless of when we will receive the cash payment. A landlord’s experience with these late payments may be so bad that it makes more sense to not accrue them at all, and instead only record revenue upon the receipt of cash (which is inclined more toward the cash basis of accounting). This latter situation tends not to last long, since the renter will have violated the terms of the rental agreement, and can then be evicted.

Accrued rent accrued rent journal entry income is a rental income that we have earned from renting out the plant or property to the other party, but we have not received the cash payment from such rental service yet. We can record the accrued rent income with the journal entry of debiting the rent receivable account and crediting the rent income account at the period-end adjusting entry. In business, when we rent our available property or equipment, we may come across a situation where we only receive a rental fee after a certain period has passed. In this case, we need to make the journal entry for accrued rent income at the end of the accounting period, even though we have not received the cash payment yet.