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    PuneetKaur's Avatar
    PuneetKaur Posts: 1, Reputation: 1
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    #1

    Dec 18, 2007, 08:22 PM
    Prepaid Rent and Unearned Rent
    What is the difference between Prepaid rent & unearned rent? Is this the same. And if in the Trial balance the account name is Unearned rent, then can we put in the liabilities side as Prepaid rent?
    Smith21000's Avatar
    Smith21000 Posts: 69, Reputation: 9
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    #2

    Dec 19, 2007, 07:57 AM
    No they are not the same. Prepaid rent is a payment made by the tenant in advance and is an asset. For example, if the tenant had paid $120 in January for the whole year ($10 a month), they would show as of 1/31/xx $110 as prepaid rent. 120/12=10, 120-10=110. Conversely, if you were the landlord in this situation you would show $110 as unearned rent as of 1/31/xx a liability, because they have received money for rent in which they have not provided February through December yet, hence the title unearned rent. This is the matching principle, primarily the major underlying principal of generally accepted accounting principles (GAAP).
    Gekko's Avatar
    Gekko Posts: 347, Reputation: 77
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    #3

    Dec 19, 2007, 08:02 AM
    Hi PuneetKaur

    They can both mean the same thing, depending on what point of view it is taken from.

    Prepaid rent could be an Asset or a Liability.
    If your company has prepaid it's rent to your lessor, then it is your asset, as it represents your future lease entitlement.
    If your company has been paid rent in advance by a lessee of a building that you have leased to them, then it is your liability, as it represents your future requirement to them.

    Unearned rent is the same as a Prepaid rent liability. Maybe choose names that can not be confused like "Rental income received in advance" and "Rental expense paid in advance".

    But generally Prepaid rent would represent an Asset, and Unearned rent would be it's matching liability
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