An accrued rent journal entry refers to rent expense that has been incurred but not yet paid. This occurs when rent is due at the end of an accounting period but has not been paid by the end of that period. Accrued rent is recognized as a liability in the books of accounts until it is paid.
Key Concepts
- Accrued Rent Expense: Rent expense that has been incurred but not yet paid.
- Liability: Accrued rent is recorded as a liability in the balance sheet.
Journal Entry for Accrued Rent
Scenario: Accrued Rent at the End of the Accounting Period
Example: A business has a monthly rent of ₹30,000. The rent for September 2023 has not been paid by the end of the month (30-09-2023).
- Recognizing Accrued Rent Expense:
When the rent expense is incurred but not yet paid, you need to recognize it as an expense and a liability.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 30-09-2023 | Rent Expense | 30,000 | Record accrued rent expense | |
| 30-09-2023 | To Accrued Rent Payable | 30,000 | Rent due but not yet paid |
- Paying the Accrued Rent:
When the accrued rent is paid in the next accounting period, you need to eliminate the liability and reduce the cash or bank account.
Journal Entry for Payment of Accrued Rent:
Example: On 05-10-2023, the business pays the accrued rent of ₹30,000.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 05-10-2023 | Accrued Rent Payable | 30,000 | Eliminate accrued rent liability | |
| 05-10-2023 | To Cash/Bank | 30,000 | Payment of accrued rent |
Additional Examples
1. Accrued Rent at Year-End
Example: A business has an annual rent of ₹360,000, payable monthly at ₹30,000. The rent for December 2023 has not been paid by the end of the year (31-12-2023).
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 31-12-2023 | Rent Expense | 30,000 | Record accrued rent expense | |
| 31-12-2023 | To Accrued Rent Payable | 30,000 | Rent due but not yet paid |
Payment of Accrued Rent:
Example: On 05-01-2024, the business pays the accrued rent of ₹30,000.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 05-01-2024 | Accrued Rent Payable | 30,000 | Eliminate accrued rent liability | |
| 05-01-2024 | To Cash/Bank | 30,000 | Payment of accrued rent |
Conclusion
Accrued rent accounting ensures that expenses are recorded in the period they are incurred, regardless of when they are paid. This is essential for accurate financial reporting and maintaining the integrity of financial statements.