How to record accrued rent expense

Introduction

Accrued rent expense is the rent expense that has occurred during the period, but we have not yet paid to the landlord or the owner of the rental property or plant for some reasons. In this case, we need to record the accrued rent expense at the period-end adjusting entry in order to account for the expense that has already occurred as well as the liability that has already existed.

Under the accrual basis of accounting, the expense needs to be recorded when it occurs regardless of when the payment is made. That is why we need to record the accrued rent expense with a proper journal entry in order to avoid the understatement of the expenses on the income statement as well as the understatement of the liabilities on the balance sheet at the end of the period.

Normally, we usually need to pay the amount of the rental fee before we can use the rental property or plant. In other words, the rental cost usually needs to be paid in advance. However, sometimes, the accrued rent expense may occur, e.g. when we are having financial difficulties and ask the landlord to delay the rent payment. In this case, we can make the journal entry for the accrued rent expense by charging the rent expense that has already occurred to the income statement and recording the liability that has already existed to the balance sheet.

How to record accrued rent expense

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

This journal entry of recording the accrued rent expense at the period-end adjusting entry will increase both total expenses on the income statement and total liabilities on the balance sheet by the same amount.

Later, when we pay the rent that we have accrued above as a result of owing the rent amount to the landlord, we can record the rent payment with the journal entry below:

This journal entry will eliminate the rent payable that we have recorded above.

Accrued rent expense example

For example, on June 30, we owed $5,000 of rent to the landlord which is the one month of the rental fee which we should have paid during the first week of June. However, due to our difficult situation, we have requested a delay from the landlord and she agrees to delay without charging us the late fee.

Later, on July 2, we make the $10,000 cash payment to the landlord for the $5,000 rent fee we owed in June and the $5,000 rental fee for July. This is due to we need to pay the rental fee in advance to the landlord in the first of the week of the month as stated in the rent agreement.

In this case, we can record the accrued rent expense of $5,000 that we have owed the landlord by debiting this $5,000 to the rent expense account and crediting the same amount to the rent payable account as in the journal entry below:

June 30:

This journal entry for recording the accrued rent expense here is made to recognize the $5,000 rent expense that has already occurred in June as well as to recognize the same amount of the liability that exists as of June 30. Likewise, this journal entry will increase both total expenses on the income statement and total liabilities on the balance sheet by $5,000 as of June 30.

Later, on July 2, when we make the cash payment of $10,000 to the landlord to pay for the rent payable above and for the July rent fee, we can record this $10,000 rent payment in the journal entry below:

July 2:

In this journal entry, the debit of $5,000 rent payable is to clear the liability that we owe to the landlord for the rent fee of June. And the debit of $5,000 prepaid rent is for the rent payment in advance that we need to make every month to follow the term in the rent agreement.