What is this?

The easiest way is to understand deferred rent to think of an example. Suppose you have a business and the first thing you did was sign a five-year lease for office space. In an effort to sign you as a tenant provides the landlord (also known as “Lessor”), you reduce rent payments in the first year, “escalate” that (ie upward) over the years progress. Keep it simple, let’s say the rent schedule is as follows:

Year 1:, 000 / month =, 000 / year
Year 2, 250 / month =, 000 / year
Year 3, 500 / month =, 000 / year
Year 4:, 750 / month =, 000 / year
Year 5:, 000 / month =, 000 / year

These amounts represent the actual cash that you pay each month. When posting the journal entries for this one, this credit (either cash or a fee) will be. The question is, what the load?

ASC 840-20-25-1 section reads as follows:

rent applies to costs incurred by lessees (reported as income by the lessor) are charged over the term, as it liabilities (debts) is. If rental payments are not made on a linear, rental costs will still be recognized on a straight, unless another systematic and rational basis is more representative of the time pattern in which use benefit derived from the leased property is, in taking this basis should be used. You see, the FASB requires, rental expenses that are “recognized on a straight.” This means that the same amount of effort must be recognized each month, regardless of the actual rent payments during the month. Let us calculate our monthly rental expenses.

From the above table, we can easily calculate that the total rent paid over the lease, 000 euros. (K + k + k + k + k). This number by the total number of months in the lease (60) are divided, we just out-line rent expense:

Total rental / Total periods = Straight-line rent expense per period

, 000 / 60 months =, 500 / month = 000 per year.

We now have the burden in our diary.

With a deduction of costs for an amount and a loan to raise money for a different amount, go rent the plug on deferred. Can rent depending on the payment plan, deferred either an asset or a liability.

In the case of a lease with increasing payments per year, as in our example is a deferred rent liability. The liability balance builds through the first two years, if the costs exceed the cash payments that flattens during the year 3, if these amounts are equal, and then falls to the course of the last two years of zero if the rent is rent expense less than payments . The journal entries for each year as follows:

Journal Entries – Year 1

Dr Rent expense 1500
Cr. Deferred rent 500
Cr. Cash 1000

Journal Entries – Year 2

Dr Rent expense 1500
Cr. Deferred rent 250
Cr. Cash 1250

Journal Entries – Year 3

Dr Rent expense 1500
Cr. Cash 1500

Journal Entries – Year 4

1500
Dr. Dr. rental expenses Deferred rent 250
Cr. Cash 1750

Journal Entries – Year 5

1500
Dr. Dr. rental expenses Deferred rent 500
Cr. Cash 1750

Here is the monthly rent liability balance deferred over the lease:

http://big4guru.com/defrent.jpg

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Tags: Credit, Debit, Deferred, Number, rent

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