USA Free Rent & Deferred Rent Liability


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Started a new building lease in April 2017 and received free rent for 7 months through Oct 2017. Even though the books were on accrual basis accounting, we were not recording straightline rent against Deferred Rent Liability those 7 months. If we had, I would see a $77k Deferred Rent Liability balance on the balance sheet based on the schedule I created. So, my question is, in order to establish that liability balance, should I simply record a JE to debit Retained Earnings and credit Deferred Rent Liability for that $77k at 1/1/18? Then I'll go back and record the payments since Nov 2017 to Deferred Rent Liability?
 
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bklynboy

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You could - if its not material I would just offset against current year rent expense so as not to restate
 

Samir

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Personally, I would record the liability in April of 2017 since that is when it existed, and since you are on an accrual method, record all the entries for rent paid for 2017 (Nov and Dec).
 
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Started a new building lease in April 2017 and received free rent for 7 months through Oct 2017. Even though the books were on accrual basis accounting, we were not recording straightline rent against Deferred Rent Liability those 7 months. If we had, I would see a $77k Deferred Rent Liability balance on the balance sheet based on the schedule I created. So, my question is, in order to establish that liability balance, should I simply record a JE to debit Retained Earnings and credit Deferred Rent Liability for that $77k at 1/1/18? Then I'll go back and record the payments since Nov 2017 to Deferred Rent Liability?
I would ask the lessor for a CM or documentation of the credits (free rent) and dates that apply. I would then post the rent liability AND the rent credit (totaling zero for the applicable months). When the credit is used up, yes, i agree, post rent liability for each month going forward and the rent you pay against that, reduces your liability and zeros you out.
 

Samir

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I would ask the lessor for a CM or documentation of the credits (free rent) and dates that apply. I would then post the rent liability AND the rent credit (totaling zero for the applicable months). When the credit is used up, yes, i agree, post rent liability for each month going forward and the rent you pay against that, reduces your liability and zeros you out.
I actually like this method even better than what I posted since you've got some documentation in the accounting system about the credits. That keeps you from digging up the lease when in a few years you wonder why you didn't pay rent for 7 months. :eek:
 
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Glad it was of help to you.
I use a similar process when giving credits and discounts to customers. On the invoice or sales receipt, I charge the full amount, then show the discount leaving the new amt due. This shows cutters I'm giving them a deal and I show in my Chart of Accounts that I didn't just charge less, I gave a credit or discount. That also die not degrade my standard pricing. Best regards. Michelle Hunnewell, CEO, BizPro Financial
 

Samir

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I like your style. :) Capturing as much data of the transaction in the accounting--to me that's good work!
 

Samir

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Will do. :) Our business is primarily real estate development and management.
 
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Great! I am licensed in California, worked as Director of Operations and VP of Property Management in Commercial, some mixed use and supervised regional multifamily. I especially loved running Tenant Improvements and Capital Improvements. My accomplish is develop my vacation development plan in northern Baja, Mexico. Owning a travel marketing company for 14 yrs, I spent a lot of time there and did a bit of condo tower marketing a year or so ago. Great opportunity there. Where are your projects and what type?
 
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Mostly for the past couple of years, our focus has been in accounting for the huge, still emerging vacation rental management. There's great money in vacation rental, short-term (corporate) rentals. Seeking to get back into management, in that space for San Francisco and Sacramento owners. Working on our new website in three coming weeks. Nice chatting. Best regards.
 

Samir

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Interesting. Our background was the hospitality industry where we developed and operated properties for over 30 years. We also diversified into some other real estate ventures and holdings, but now as we are getting old, we have been selling off properties for the last few years. Our official exit from the hospitality industry was in 2015 when we sold our last hotel that year, and now have a mix of commercial tenant as well as undeveloped properties that we are looking to sell.

That's interesting about Baja. There are so many growth pockets in the world for those who know where to look to find them, and operate in them. My wife has worked for many global companies that know how to do that in their respective industry and it's always neat to see.
 

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Accounting demand for the vacation rental industry will only get bigger as that industry butts heads and eventually has a close nexus with the hospitality industry. Great place to be! Interesting you mention the Bay area--my wife and I just moved to Foster City. Small world. I'd love to see the web site when you have it done, so definitely share it. Nice talking with you as well. :)
 
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Interesting. Our background was the hospitality industry where we developed and operated properties for over 30 years. We also diversified into some other real estate ventures and holdings, but now as we are getting old, we have been selling off properties for the last few years. Our official exit from the hospitality industry was in 2015 when we sold our last hotel that year, and now have a mix of commercial tenant as well as undeveloped properties that we are looking to sell.

That's interesting about Baja. There are so many growth pockets in the world for those who know where to look to find them, and operate in them. My wife has worked for many global companies that know how to do that in their respective industry and it's always neat to see.
Wow...great business history for you and your wife. It sounds like you've
Accounting demand for the vacation rental industry will only get bigger as that industry butts heads and eventually has a close nexus with the hospitality industry. Great place to be! Interesting you mention the Bay area--my wife and I just moved to Foster City. Small world. I'd love to see the web site when you have it done, so definitely share it. Nice talking with you as well. :)
Oh excellent! You're so close to The City but you have the benefit of the Peninsula too. That's a fantastic place to live and for all commercial ventures. The business climate there, so close to Silicon Valley is still on fire! Sacramento is great for residential income property...it's half the price (or less) and the residential rental market has increased by about 20%. Best regards and much enjoyment in your new home, to you and your wife. Let's stay in touch. My cell phone is [removed]
 
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Samir

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Yep, we found the place by accident--it just needed to be safe as my wife and I travel a lot for work so we're not always together. The residential market is a bit crazy there imo and it's going to burst at some point because there isn't infinite cash out there, but it keeps coming from the new boomers...for now.

Most definitely, my cell is [removed]. (My number is left over from my college days. :D I actually have had it posted online for over a decade on my car enthusiast website.)
 
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Good place to end up. Best of everything close by. Including the ocean, straight west on hwy 92 into Half Moon Bay, and... SFO! Ive kept my 415 number for 20 years. I'll give you a call during the week.
 
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