Question

On September 1, a company received cash of $9,336 for one year’s rent in advance and recorded the transaction on that day as a credit to rent revenue.  

The amount (value) to be recorded on December 31 adjusting entry would be:

Answer 1

When receiving a rent in advance entry will be ,

Cash account Dr $9336

To rent received in advance $9336

(Being rent received in advance for 1 year)

And every month end entry will be,

Rent received in advance account Dr $778

To rent revenue $778

(Rent recognised for 1 month)

At December 31 balance in rent received in advance of $ 6224 transfer as current liability. (9336-(778×4)).

Here on September the entire amount took as rent revenue. So on December 31 , $6224 should go to rent received in advance account and only balance 3112 (778×4) should be the rent revenue balance.

There for adjustment entry will be,

Rent revenue account dr $ 6224

To rent received in advance $6224

(Being exess amount taken as rent revenue is adjusting against rent received in advance).

now on 31 December rent revenue income balance would be $3112 and rent received in advance balance would be $ 6224.