Summer Leasing received $12,000 for 24months rent in advance.How should Summer record this transaction?

Question

Quizplus · Accepted Answer

When a company receives payment for rent or services in advance, it is considered as deferred revenue, also known as unearned revenue. This is because the company has not yet earned the revenue, but has received the cash. Therefore, we should debit cash and credit deferred revenue. Option A is incorrect because Prepaid Rent is an asset account, and would increase if the company had paid rent in advance, not received it. Option C is incorrect because Service Revenue is a revenue account, and would be credited only when the company has earned the revenue by providing the service.

Summer Leasing Received $12,000 for 24months Rent in Advance