Rent Due Journal Entry

Rent due is the amount of rent that company has not yet paid to the landlord after using the rent service.

The company rents the property from the landlord to save the working capital without huge spending on purchasing the property. The company can use the money for other purposes such as purchasing inventory, paying for employees, and other payments. They do not have to spend huge money on the property which will lock the capital for long period.

Moreover, the company will only spend on the rental without worrying about other work such as repair & maintenance. It will save some of the expense and headache. The company is also not required to pay the property tax as it will be paid by the owner.

Rental is the expense that company spends on the property to use for setting up the office, warehouse, shop, or any other purpose. It will be recorded as the operating expense on the income statement. If the company spends the rental fee more than a year in advance, they have to record the prepaid rent.

Journal Entry for Rent Due

When the landlord issue the invoice to company, they have to record the rental expense and accounts payable.

Most landlords require the company to pay the rent at the beginning of the month. It means the payment is made before the rent service is consumed. It sounds slightly different from accounting rules, but it is not wrong as the company has to record expenses in the month. They record expenses in the month that consume service.

When the company uses the rental service, it will require to record a rental expense on income statement. If the company has not yet made the payment, accountant has to record rent payable which is the current liability on the balance sheet.

The journal entry is debiting rental expense and credit rent payable.

The transaction will increase the rental expense on income statement and rent payable on balance sheet.

On the payment date, company will reverse the rent payable and reduce cash balance. The journal entry is debiting rental payable and credit cash.

The entry will remove rent payable from balance sheet and decrease the cash balance.

Example

Company ABC rent the warehouse from a landlord for $ 500 per month. During the month, the property owner issues an invoice to the company. However, the company is not yet made payment to the owner due to various reasons. Please prepare the journal entry for rent due.

Company ABC has the obligation to pay a rental fee to the property owner after receiving the invoice. But the company not yet making payment, so they have to record the liability which is accounts payable. They have to record rental expenses as well because they consume the rental service during the month.

The journal entry is debiting rental expense $ 500 and credit rent payable $ 500.