![]() Therefore, long outstanding trade and other payables should not be written off from the statement of financial position simply because they have not been paid long after their due date although receivables may be written off immediately in the accounting period in which they are considered as irrecoverable. IFRS 9 Financial Instruments states that financial liabilities should only be de-recognized by an entity when the related contractual obligation is ‘discharged, cancelled or expired’. The liability of the entity does not extinguish by the mere passage of time. The journal entry is debiting rental expense $ 500 and credit rent payable $ 500.Trade creditors and other accounts payables constitute financial liabilities of the company which are payable to the respective creditors according to the terms of contracts. They have to record rental expenses as well because they consume the rental service during the month. But the company not yet making payment, so they have to record the liability which is accounts payable. Please prepare the journal entry for rent due.Ĭompany ABC has the obligation to pay a rental fee to the property owner after receiving the invoice. However, the company is not yet made payment to the owner due to various reasons. During the month, the property owner issues an invoice to the company. ExampleĬompany ABC rent the warehouse from a landlord for $ 500 per month. The entry will remove rent payable from balance sheet and decrease the cash balance. The journal entry is debiting rental payable and credit cash. On the payment date, company will reverse the rent payable and reduce cash balance. The transaction will increase the rental expense on income statement and rent payable on balance sheet. ![]() ![]() The journal entry is debiting rental expense and credit rent payable. ![]() If the company has not yet made the payment, accountant has to record rent payable which is the current liability on the balance sheet. When the company uses the rental service, it will require to record a rental expense on income statement. They record expenses in the month that consume service. It sounds slightly different from accounting rules, but it is not wrong as the company has to record expenses in the month. It means the payment is made before the rent service is consumed. Most landlords require the company to pay the rent at the beginning of the month. When the landlord issue the invoice to company, they have to record the rental expense and accounts payable. ![]() If the company spends the rental fee more than a year in advance, they have to record the prepaid rent. It will be recorded as the operating expense on the income statement. Rental is the expense that company spends on the property to use for setting up the office, warehouse, shop, or any other purpose. The company is also not required to pay the property tax as it will be paid by the owner. It will save some of the expense and headache. Moreover, the company will only spend on the rental without worrying about other work such as repair & maintenance. They do not have to spend huge money on the property which will lock the capital for long period. The company can use the money for other purposes such as purchasing inventory, paying for employees, and other payments. The company rents the property from the landlord to save the working capital without huge spending on purchasing the property. Rent due is the amount of rent that company has not yet paid to the landlord after using the rent service. ![]()
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