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Accounting and Journal Entry for Rent Received

Journal Entry for Rent Received

If a business owns a property that is not being used then it may decide to rent it out and collect periodical payments as rent. Such a receipt is often treated as an indirect income and recorded in the books with a journal entry for rent received. This adds an extra source of income for the firm. The other party may post a journal entry for rent paid in their books.

Rental income received from the tenant is,

  • Recurring in nature
  • Pre-decided amount
  • Received every month
  • Likely shown as “rent received” in the financial statements.

Landlord – The legal owner of the property is called ‘landlord’.

Tenant – The party who rents the property and pays rent to the landlord is called ‘tenant’.

 

Journal entry for rent received (in cash/cheque)

Rent received journal entry

Accounting rules applied – Modern Rules

Cash/Bank AccountDebitDebit the increase in asset
 To Rent AccountCreditCredit the increase in income

Accounting rules applied – Three Golden Rules

Cash/Bank AccountDebitDebit what comes in – Real A/c
 To Rent AccountCreditCredit all incomes – Nominal A/c

 

Accounting Treatment for Rent Received

Payment of rent received (in cash/cheque) is treated with a couple of steps as shown below;

Step 1 – Journal entry for rent received (in cash/cheque)

Cash/Bank A/cDebit
 To Rent A/cCredit

 

Step 2 – Transferring receipt of rental income to the income statement (profit and loss account).

Rent A/cDebit
 To Income StatementCredit

 

Presentation in the Financial Statements

It is shown on the credit side of an income statement (profit and loss account).

Rent received in Income statement

 

Example of Receipt of Rent

On the 10th of March, Unreal Corporation received rent 20,000 via a cheque from tenant ABC for one of its property on rent. The receipt relates to the same month. Show related journal entries for office rent received in the books of Unreal Corporation.

March 10 – Journal entry at the time of rent received

Bank A/c20,000
 To Rent Received from ABC A/c20,000

 

March 31 – When the business books Closing entries

Rent Received from ABC A/c20,000
 To Income Statement20,000

 

Journal Entry for Rent received in Advance

Rent received in advance is the amount of rent received before it was actually due, however, the related benefits equivalent to the advance received are yet to be provided to the tenant. Such an intake of money belongs to the future accounting period.

It is displayed as a current liability in the balance sheet, as it is income received but not earned.

 

Journal Entry

Rent A/cDebitDebit the decrease in income
 To Rent Received in Advance A/cCreditCredit the increase in liability

(Being rent received in advance/ pre-received rent adjusted at the end of the period)

 

Example On 20th December ABC Ltd received office rent from its tenant in cash 75,000 (25,000 x 3) for the next 3 months ie. Jan, Feb & Mar. The accounting period followed by ABC Ltd is from January to December. Show journal entries to be passed in the books of ABC Ltd.

December 20 – Journal entry at the time of rent received

Cash A/c75,000
 To Rent A/c75,000

 

December 31 – Journal entry for adjustment of the rent received in advance at the end of the current accounting period

Rent A/c75,000
 To Rent Received in Advance A/c75,000

 

January 1, February 1 & March 1 – Rent income allocated to each of the 3 months

Rent Received in Advance A/c25,000
 To Rent A/c25,000

Related Topic – Income Received in Advance

 

Journal Entry for Rent received with TDS & GST

Entities paying GST have to charge GST on the rental services provided by them to the tenants. Also, tenants who have rented the property or office premises have to deduct TDS on the rent amount payable to the landlord.

GST and TDS will be considered taking into account the local tax requirements.

 

Journal Entry

Bank A/cDebitDebit the increase in asset
TDS Asset A/cDebitDebit the increase in asset
  To Rent A/cCreditCredit the increase in income
  To GST Liability A/cCreditCredit the increase in liability

(Being rent received taking into consideration TDS & GST)

  • GST charged is a liability for the entity because it has to be collected from the tenant and deposited with the Government.
  • TDS deducted by the tenant is an asset for the entity ie. the landlord. This is because the tenant will deposit the TDS with the government and then it may be claimed as a tax credit by the landlord.

 

ExampleXYZ Ltd charges monthly office rent of 100,000 from its tenant. It also charges GST e.g. 18% on 100,000. On the 10th of every month, the tenant deducts TDS say 10% on the rent amount i.e. 100,000 at the time of payment of rent to XYZ Ltd.

Show journal entries in the books of XYZ Ltd for rent received considering TDS & GST implications.

10th of every month – Journal entry at the time of receipt with TDS & GST

Cash/Bank A/c1,08,000
TDS Asset A/c10,000
  To Rent A/c 100,000
  To GST Liability A/c 18,000

 

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