Accrued rent expense definition
/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.
Related AccountingTools Courses
FAQs
How Does Accrued Rent Expense Differ From Prepaid Rent?
Accrued rent expense is rent that has been incurred but not yet paid, making it a liability on the balance sheet. Prepaid rent, on the other hand, is rent paid in advance for future periods, recorded as an asset until the time is used. One reflects an obligation owed, while the other reflects a future economic benefit.