Answer to Question #179778 in Accounting for Milan

Question

Debit Unearned Lease Rental Income

Credit Lease Receivable

• What does this journal entry mean?

Answer 1

Here rent received in the previous year has been recognised during current year but debiting previously credited unearned revenue in prior year and crediting lease receivable which has been recognised as asset during the current year.these can be understood with below.

To account for this unearned rent, the landlord records a debit to the cash account and an offsetting credit to the unearned rent account (which is a liability account). In the month of cash receipt, the transaction does not appear on the landlord's income statement at all, but rather in the balance sheet (as a cash asset and an unearned income liability).

In the following month, the landlord earns the rent, and now records a debit to the liability account to clear out the liability, as well as a credit to the revenue account to recognize the revenue. The impact of the transaction now appears in the income statement, as revenue.

1.year end

Cash a/c

To unearned lease income(liability)

next year

2.Lease receivable a/c

To lease income

3.Unearned lease income  

To lease receivable a/c