How to record accrued rent income

Introduction

Accrued rent income is a rental income that we have earned from renting out the plant or property to the other party, but we have not received the cash payment from such rental service yet. In this case, we need to record the accrued rent income with a proper journal entry in order to account for the revenue that we have already earned on the incomes statement as well as to recognize our right to receive the cash payment on the balance sheet at the period end adjusting entry.

Under the accrual basis of accounting, we need to record the revenue that we have already earned on the income statement, regardless of when the cash payment is received. Likewise, when we have earned the rent income, e.g. from renting office space to the other party during the period, we need to record the accrued rent income for the period even though, for some reasons, we have not received the cash payment yet.

In business, we usually receive the cash payment in advance for the rental service, e.g. renting property such as office space or renting the plant asset such as a business car to another party. However, we may come across a situation where the clients request for the delay of rent payment to the next month period for some reasons, e.g. when the clients have financial difficulty, etc.

This is when we usually need to record the accrued rent income with a proper journal entry in order to avoid the understatement of the total revenues on the income statement as well as the understatement of the total assets on the balance sheet at the period end adjusting entry.

How to record accrued rent income

We can record the accrued rent income with the journal entry of debiting the rent receivable account and crediting the rent income account at the period-end adjusting entry.

Account	Debit	Credit
Rent receivable	XXXX
Rent income		XXXX

In this journal entry, we record the accrued rent income at the period-end adjusting entry in order to recognize our right to receive the rental fee in form of the cash payment on the balance sheet. At the same time, we also record this transaction to recognize the rent income on the income statement that we have already earned but have not received the cash payment yet.

Later, when we receive the rent payment, we can make another journal entry to clear the rent receivable that we have recorded previously. This can be done with the journal entry of debiting the cash account and crediting the rent receivable account.

Account	Debit	Credit
Cash	XXXX
Rent receivable		XXXX

Accrued rent income example

For example, at the period end of June 30, we have not received the $3,000 cash payment of the June rental fee for the office space rent yet, due to the client’s financial difficulty during the period. We should have received this $3,000 at the beginning of June as in the agreement in which the rent payment needs to be paid in advance.

However, as the client has difficulty in their business, we agree to delay the payment until the first week of next month which is July. In this case, the client will need to make a $6,000 cash payment to us in the first week of July, in which the first $3,000 is for the June rental fee and another $3,000 is to cover the July rental fee.

Since we follow the accrual basis of accounting, we need to record the $3,000 rent income that we have already earned at the period-end adjusting entry of June 30.

In this case, we need to record the $3,000 of the accrued rent income by debiting this $3,000 amount to the rent receivable account and crediting the same amount to the rent income account as in the journal entry below:

June 30 adjusting entry:

Account	Debit	Credit
Rent receivable	3,000
Rent income		3,000

Later, when we receive this $6,000 cash payment from the client in the first week of July, we can record the half amount as the clearing of rent receivable that we have recorded on June 30, and another half as the unearned rent revenue with the journal entry below:

Account	Debit	Credit
Cash	6,000
Rent receivable		3,000
Unearned rent revenue		3,000

This journal entry will clear the $3,000 rent receivable that we recorded on June 30 above.