Prepaid revenue (service)

You are the CEO of Ace Traders who report monthly. Your office is in the Melbourne CBD and has 3 carpark spaces ... but you only need 2!  You decide that it would be a good idea to rent the spare carpark space to add an additional revenue stream to the business ... Sales as well as Rent Revenue coming from the spare carparking space.  You decide that $1000 plus GST per month is the going rate!  You advertise this spare carparking space and get lots of offers.  You decide on one customer, Chan Enterprises, and on 1st July, they pay $3000 plus $300 GST for 3 months rent of that carpark.

How would you record this $3300, Receipt #89?

It is recorded in the Cash Receipts Journal as ... Prepaid Rent Revenue.

Prepaid Rent Revenue sounds like Revenue ... but it is not ... it is a current liability.  

Why?  The business has an obligation to the customer who just gave them $3000 plus GST!  The obligation is to Chan Enterprises to provide that car parking space for the next 3 months.

At the end of the month, the CRJ is posted.  The $3000 will be a credit to the Prepaid Rent Revenue ledger account.

And it is balance day on the last day of the month.  Of the $3000 received from your client, Chan Enterprises, you have only earned $1000.  So we do a balance day adjustment in the General Journal:

Dr:  Prepaid Rent Revenue $1000
Cr:  Rent Revenue $1000

Accrual accounting says we must report revenue earned less expenses incurred ... and we have just done that ... $1000 revenue has been recorded and reported as earned.

Reports:
In the Cash Flow Statement, Operating Activities will show Prepaid Rent Revenue $3000.

In the Income Statement, Rent Revenue $1000 will be reported as Other Revenue.

In the Balance Sheet, Prepaid Rent Revenue $2000 will be reported as a Current Liability.