Accrued Liability

The periodic (e.g., monthly) rental expense payable is accrued in the accrued liability account.

The initial entry generated by the solution to record periodic rental expense is as follows:

Dr. Rent Expense
  Cr. Accrued Liability

For example, on January 01 2015, ABCD Inc. entered into an agreement to lease a machine for a fixed period of four years with a total rent payment of $240,000. The first rent payment of $100,000 has been scheduled for July 01, 2015 and the lease has been classified as an operating lease by ABCD Inc.

To record the monthly rent expense of $5,000 for the month of January 2015, ABCD created the following journal entry:

Dr. Rent expense $5,000
  Cr. Accrued Liability $5,000

Accrued liability account consists of all of the rent expenses that have been incurred but for which the payment has not been made yet.

A debit in the accrued liability reduces the rent payable and is usually entered to record payment made to the lessor. For the previous example, ABCD makes the first payment of $100,000 on July 01, 2015. The accrued liability balance from January to June is $30,000 ($5,000 per month x 6 months). ABCD records the transaction in the following way:

Dr. Accrued Liability $30,000
Dr. Rent Expense (July 2015) $5,000
Dr. Prepaid Asset (Prepaid Rent) $65,000
  Cr. Cash $100,000

See also:  

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