Deferred Liability

There could be situations in which the lessee enjoys a rent free period as an incentive provided by the lessor. The rent expense for these free periods get accumulated in the deferred liability account. The journal entry to record this case is as follows:

Dr. Rent Expense
  Cr. Deferred Liability

The deferred liability account is debited when there is a payment made to the lessor as shown in the following entry:

Dr. Deferred Liability


Cr. Cash

Deferred liability falls within the next 12 months are classified as short term deferred liability and the deferred liability for the periods beyond the next twelve months are classified as long term.

See also:  

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