Deferred and Accrued Revenues/Expenses – Journal Entry

Practice Question

Intro to Financial Accounting
Adjustments and Quality of Earnings
Deferred and Accrued Revenues/Expenses
Short Answer

A real estate company collected $12,000 in advance rent for six months. Prepare the journal entries for the collection and the recognition of revenue in the first month.

Answer +
Final Answer: Debit Cash $12,000, Credit Deferred Revenue $12,000; Debit Deferred Revenue $2,000, Credit Rent Revenue $2,000
Explanation +

Step 1: When cash is collected

The entry will be:
- Debit Cash $12,000
- Credit Deferred Revenue $12,000

Step 2: Monthly recognition of revenue

The entry for one month of rent earned is:
- Debit Deferred Revenue $2,000
- Credit Rent Revenue $2,000

Conclusion: This records the initial liability when cash is collected and then recognizes earned revenue monthly over the lease period.