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USTaxAdvising
USTaxAdvising, Accountant
Category: Finance
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Experience:  Professional with finance related questions.
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I had a lease prepay their August rent- handed me a check on

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I had a lease prepay their August rent- handed me a check on July 27 which I deposited same day. For accounting purposes I will record payment as of 07/27/15 and deposit date of 07/27/15 but should I post the month as July (actual month received and deposited) or August (month in which rent is due)? And why?
Submitted: 1 year ago.
Category: Finance
Expert:  USTaxAdvising replied 1 year ago.
Hello,You would have to look to the rental agreement to determine when you should be recording the rent as "income". If the rent for a month is due on the 1st of the month for which tenancy will occur then the accounting recognition date would be the 1st of each month. (following "accrual" accounting and the matching principle). If you are keeping your books on the accrual basis then the receipt on July 27th should be recorded as a debit to cash and credit to unearned rental income (a balance sheet liability account). This records the receipt and the future liability to rent. On August 1st you would record a credit to rental income (income statement account) to record the income and debit to the unearned rental income balance sheet account to close out the rental liability. If you are on the cash basis of accounting then you would recognize the receipt as income on July 27th and not record the unearned revenue on the balance sheet. (basically eliminating two entries) (1 on receipt and the 2nd on Aug 1st when the rental income is recorded.I hope this provides the clarity you were looking for. Please let me know if you have any follow up questions and I will get back to you as soon as I can.Best regards,