what is/are the accounting entries for the rent free period - say first 3 months of a new property lease
summary 3 year lease, Lease Rent @ £ 36k pa first 3 months rent free
Related resources
Replies (6)
Please login or register to join the discussion.
Strictly speaking you spread the payment for 33 months evenly over the 36 month term of the lease.
So your P & L charge is £2,750 per month (£3,000 x 33/36).
@JG
thanks but confused- what is the accy entry month 1, to be replicated in mth2 + mth 3 , before the first Rent invoice is received
is it .............
month1: and then mth2 and then mth3
DR P+l Rent 916.67
CR -where on balance sheet account/s - say new current liability RENT FREE ?
on day one...how do you record this Balance sheet item and wind it down up in mth 2 + 3 then unwind it in mths 4 -36
[ie mth 4 -36 invoice to be received £1k mth DR P+l CR Creditors ledger ]
p+l is then in mth 4 overstated @ 1k, so needs to be credited (1000-916.67) + contra against the RENT FREE current liabilty ie £83/mth for 33 month= £2750
is this correct.......the reality is we establish a Balance Sheet .......Creditor with rent free periods
The difference between the monthly charge in the P & L and what has been paid just goes into accruals. So after 3 months the accrual will have built up to £8,250 (i.e. 3 x £2,750 with nothing paid). the accrual then comes down by £250 a month (i.e. £3,000 paid less £2,750 to P & L) so that it is down to £Nil after 33 months.
Or use a suspense account
Create a sundry creditor 'Rent free period"
Set up a monthly journal £2750 Dr Rent (P&L) Cr Rent free period (BS).
Post all payments Dr Rent free period (BS) Cr Bank
Same approach, calculate total rent that will be payable over the ten years (10xannual)-(2x50%annual), divide by 120 to calculate monthly charge. You will then have an accrual or prepayment being created as payments progress (subject to charge/payment matching that will unwind throughout the term)