Accrued rent income definition
/What is Accrued Rent Income?
Accrued rent income is the amount of rent that a landlord has earned in a reporting period, but which has not yet been received from the tenant. A landlord using the accrual basis of accounting should record this income, in order to recognize it in the period in which it was earned.
Example of Accrued Rent Income
A landlord owns a property and has a lease agreement with a tenant. The tenant is supposed to pay $1,000 in rent on the first day of each month. However, at the end of December, the tenant has not yet paid the rent due for December. The landlord uses the accrual basis of accounting.
Even though the cash has not been received by December 31st, the landlord still recognizes the $1,000 as rent income for December because the rent has been earned. On the financial statement for December, $1,000 is recorded as rent income, while $1,000 is also recorded as accounts receivable. The related journal entry is a debit of $1,000 to accounts receivable and $1,000 to rent income. This entry ensures that the landlord's financial statements accurately reflect the earned income, even though the cash payment will be received in January.
Accounting for Accrued Rent Income
The amount of any accrued rent income should not be recorded if it is probable that the tenant will not pay, and there is no alternative method for receiving payment. The accounting entry for this item is to debit accounts receivable (asset) and credit the accrued rent income account (revenue). Once the tenant pays, the accounting entry is a debit to the cash account and a credit to the accounts receivable account (thereby flushing out the amount in the receivable account).