RENT EXPENSE

Save Share

This query is : Resolved

Anil Kumar Meena (Querist)
Follow

19 March 2010 Hi All,

I have a query relating to posting on rent expense as per US GAAP.Let us assume in 2009 we booked rent $5000 which should be $25000. now we are at march and december 2009 financial closed and audited as per US GAAP.
can you please tell me how we book this $20000 in current financial?
If you u want some more information just let me know.
Thanks,
Anil

Anil Kumar Meena

Anil Kumar Meena (Querist)
Follow

14 April 2010 Guys,,

Still waiting for your great responses.

Thanks,

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
Follow

21 July 2025 Hi!

Thanks for your question on rent expense accounting under US GAAP. Here’s a breakdown based on your situation:

Situation Recap:
In 2009, rent expense was understated by $20,000 ($5,000 booked vs. $25,000 actual).

The 2009 financials have been closed and audited.

Now it’s March (assumed 2010), and you want to know how to book the $20,000 difference in the current financial year.

Key Points under US GAAP:
Prior Period Adjustment:
Since the 2009 financial statements are closed and audited, the $20,000 difference is considered a prior period error if it was due to a mistake or omission.

Restatement or Correction:

If the error is material, US GAAP requires the prior period financial statements to be restated. This means reissuing 2009 financials correcting the rent expense.

If restatement is not feasible or the error is immaterial, you adjust the opening retained earnings of the current period.

Booking the $20,000 in Current Year:

Do not expense $20,000 in the current year’s P&L again (that would double count).

Instead, adjust the opening retained earnings in the current year’s equity section to reflect the prior period correction.

Example journal entry as of Jan 1, 2010:

bash
Copy
Edit
Dr. Retained Earnings $20,000
Cr. Rent Expense $20,000
This entry corrects the cumulative rent expense understated in the prior period without impacting current year earnings.

Summary:
For an error discovered after audit and closing:
Do a prior period adjustment by adjusting opening retained earnings in current year, rather than booking it as current year expense.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now