Understanding Unearned Rent Revenue in Accounting
Explanation:
When rent is collected in advance, it is initially recorded as Unearned Rent Revenue, which is a liability account. This is because the rent has been collected but has not yet been earned. On December 1, when the $1,200 rent was collected for the period December 1 of the current year to April 1 of next year, it was credited to Unearned Rent Revenue. This increases the liability of Unearned Rent Revenue by $1,200.
The entry to record this would be:
- Debit: Cash $1,200
- Credit: Unearned Rent Revenue $1,200
Option c shows this correctly, with a debit of $-1,250 to cash and a credit of $-1,250 to Unearned Rent Revenue.