Explain how tenants record rent paid in advance for an office building and how a landlord or owner of the property rented records the receipt of the advance payment. Show journal entries as part of your answer
Tenant: Rent paid in advance for the future use of an office building is recorded as an asset called Prepaid Rent.
Journal entry:
Prepaid Rent XX
Cash XX
Landlord or Office Building Owner: Rent received in advance shows up as a liability for the owner or landlord. The owner of the office space cannot include in income the amounts paid by the tenant for future months until the owner provides the rental services. So, the advance payment results in a liability payable in services for the use of the building and is commonly called Advances from Tenants, or Rent Received in Advance.
Journal entry:
Cash XX
Rent Received in Advance XX
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