What is Accrued Rent?

Accrued rent expense is the amount of rent cost that has been incurred by a renter during a reporting period, but not yet paid to the landlord. In practice, this amount is small to nonexistent, since landlords typically insist on rent being paid in advance. If there is an accrued rent expense, it can indicate that a renter does not have sufficient cash to pay the landlord on a timely basis.

Accounting for Accrued Rent Expense

If a tenant is using the accrual basis of accounting, then it should accrue for this expense in the accounting period in which it incurs the expense, which means the period during which it is using the rental property. The tenant then reverses the accrued expense in the following period.

Example of Accrued Rent Expense

Hillside Corporation rents office space for $5,000 per month, payable on the 10th of the following month. Thus, the company incurs a $5,000 rent obligation in each month, but does not have to pay it until the following month. Hillside should record a $5,000 debit to rent expense in the month of occupancy, with a $5,000 credit to the accrued rent payable account. In the following month, when Hillside pays the rent, it records a $5,000 debit to the accrued rent payable account (thereby eliminating the liability) and a $5,000 credit to its cash account.