Understanding Unearned Rent Revenue in Accounting

Explanation:

When rent is collected in advance, it is initially recorded as Unearned Rent Revenue, which is a liability account. This is because the rent has been collected but has not yet been earned. On December 1, when the $1,200 rent was collected for the period December 1 of the current year to April 1 of next year, it was credited to Unearned Rent Revenue. This increases the liability of Unearned Rent Revenue by $1,200.

The entry to record this would be:

  • Debit: Cash $1,200
  • Credit: Unearned Rent Revenue $1,200

Option c shows this correctly, with a debit of $-1,250 to cash and a credit of $-1,250 to Unearned Rent Revenue.

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