Vaughn Manufacturing Rent Revenue Adjustment Entry

Adjusting Entry for Rent Revenue

Vaughn Manufacturing made the adjusting entry on December 31, 2017, for the cash received on August 1, 2017, for one year's rent in advance. The correct entry was to debit Rent Revenue and credit Unearned Rent Revenue for $26,500.

When Vaughn Manufacturing received cash of $63,600 on August 1, 2017 for one year's rent in advance, they initially recorded this transaction with a credit to Rent Revenue. However, since the revenue was unearned at the time of receipt and needed to be recognized over the period it was earned, an adjusting entry was required at the end of the accounting period on December 31, 2017.

The adjusting entry involved debiting Rent Revenue to decrease the sales and crediting Unearned Rent Revenue to increase the liability on the balance sheet. The amount recorded in this entry was $26,500, which represents 5 months of the total annual rent amount considering the partial year from August 1 to December 31.