How do you Include Rent on a Balance Sheet?

Rent is a type of payment that is made to the landlord for using their property. If rent is paid then it is considered as an expense and if it is received then it is considered as an income. Therefore, you can’t include rent on a balance sheet. However, if you pay the rent in advance then you can include rent on a balance sheet as an asset.

What is Rent Expense?

Rent expenses are a type of expense for a business that indicates how much a business has to pay while using a property for an office, retail space, storage space, or factory. Rent expense is considered as one of the largest expenses of a company. The rent expense account contains the total rent expenses of a company in a given period. Usually, the rental expenses are included in the income statement. You can add the rent expenses in the selling, administrative or production portions of the income statement.

Description	Rent Expenses
Cash Basis of Accounting	Here, the rental expenses are reported in a period when the rent was paid during that period. This information indicates the total amount of money that is used to give the rent.
Accrual Basis of Accounting	If you pay the rent in advance then it will be listed as an asset in the prepaid expenses account. When the business pays the rent then it will be recognized as an expense.

Types of Rent

Prepaid Rent	If you pay the rent before the rental period then it is considered as prepaid rent. Prepaid rent is very common because in most cases the rent is paid in advance. Prepaid rent is considered as an asset.
Deferred Rent	This type of rent is very common in lease accounting. This type of rent occurs when the cash rent payment is different from the actual financial statement. You can think of deferred rent as the opposite of prepaid rent.
Accrued Rent	This type of rent indicates the total amount of rent that the renter owned. This type of rent is considered a liability. If you pay the rent on time then there won’t be any accrued rent.

How to Include Rent on a Balance Sheet

Rent is a type of expense that is usually listed on the income statement. Generally, you can’t include rent in the balance sheet. But, in some circumstances, you can include rent on a balance sheet. They are –

• If you pay the rent in advance (6 months or above) then you can include the rent as a long-term asset in the balance sheet
• If you pay the rent in advance (less than 3 months) then you can include the rent as a short-term asset in the balance sheet
• If you have paid one month ahead then you can add the rent as a current asset in the balance sheet
• If you miss any rent payment then you can include the due rent amount on the liability side of the balance sheet

The below table will give you a clear idea –

Type	Major Account Type	Account
Asset	Liability	Owner’s Equity	Revenue	Expense	Balance Sheet	Income Statement
Rent Payment	No	No	No	No	Yes	No	Yes
Rent Receive	No	No	No	Yes	No	No	Yes
Advance Rent (6 Month+)	Yes	No	No	No	No	Yes	No
Advance Rent (1 – 3 Months)	Yes	No	No	No	No	Yes	No
Rent Missed Payments	No	Yes	Yes	No	No	Yes	No
Owner’s Capital	No	No	Yes	No	No	Yes	No

FAQs about How do you Include Rent on a Balance Sheet

Can you include rent as a liability in a balance sheet?

Yes, you can include rent as a liability in a balance sheet. This will only be possible if you miss any rent payments. If there is any missed rent payment then you can include that amount as a liability on a balance sheet.

Is rent expense an asset on a balance sheet?

If you made the rent payment well in advance, then according to the accrual method you can record the rent payment as an asset. This type of payment is considered a prepaid expense.

Does rent go on a balance sheet or income statement?

Basically, rent goes on an income statement. If you have paid the rent then it will be considered as expenses in the income statement. On the other hand, if you receive rent then it will be considered as profit in the income statement.

Is rent current liabilities?

According to the current liabilities definition, if the rent is payable within one year then it is current liabilities. You should keep in mind that all types of debts that are payable within one year are considered as current liabilities.

What type of account is a rent account?

A rent account is a type of nominal account. Usually, a nominal account is closed at the end of each accounting year. Other examples of nominal accounts are wages accounts, commission accounts, etc.     

References:

https://www.investopedia.com/terms/r/rent-expense.asp

https://www.interviewarea.com/faq/does-rent-go-on-balance-sheet

Last Updated on December 25, 2023 by Magalie D.