rent advance is current liability is it correct or not
Replies (6)
Quick Summary
This discussion clarifies whether rent received in advance is considered a current liability. The consensus is yes, as it represents unearned income. It explores the accounting entries, differentiating between advance payments for services not yet rendered (deferred revenue) and payments for already provided services. The impact on tax planning and the substance over form principle are also touched upon.
But rent received in advance for an existing customer
Dr. Bank
Cr. Rental income
When the due date is over shucks there is no entry and so its deferred revenue. So a bank can have a contra entry called advance bank payments
Dr. Advance bank account
Cr. Rental income
After due date
It can be
Dr. Bank
Cr. Advance bank account
Substance over form. Whats the difference? You already rented it and you didnt promise them good or service whilst you already provided it and received advance payment.
So deferred revenue is only for services which werent provided yet.
It didnt make any difference? Besides an accrual entry is missed on the income statement. Now someone who knows tax planning will understand the impact of it.
Revenue received or billed should be deferred and recognised either on a
straight line basis over time or, where the items delivered vary in value from
period to period, revenue should be based on the sales value of the item
delivered in relation to the total sales value of all items covered by the
subscripttion.
There is nothing else in thos standard. Does it say deferral is a liability?