Tuesday, July 27, 2010

Prepaid Rent and Unearned Rent

What is the different between Prepaid Rent and Unearned Rent?

The following is an accounting example explaining the different between prepaid rent and unearned rent. Prepaid rent is a type of payment made by a tenant in advance of its due date and is an asset to the receiving company. For example, if the apartment's tenant had paid $240 in January for the entire year rent ($20 a month), it would show as of 1/31/xx $240 as prepaid rent. 240/12=20, 240-20=220.

The landlord in this situation would show $220 as unearned rent as of 1/31/xx a liability on the balance sheet, because they have received money for rent in which they have not provided service February through December, therefore the title unearned rent. This is the matching principle in accounting, primarily the major underlying principal of generally accepted accounting principles (GAAP).

Additional Accounting Examples:

Advance Payments and Unearned Rent

Credit Sales and Purchases

Accounting Cost Principle

Revenue Recognition Principle

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