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Level 1

How to record prepaid rent correctly

 Here is the situation: for example, a tenant has a monthly rent of $50. I got from him a check of 200. Question: why $150 of prepaid rent go to AR? It should be Unearned Rental Income (current liability). Could you help me with that?

How to record it correctly?

Thank You!

2 Comments 2

How to record prepaid rent correctly

I'm here to make sure that you can record your prepaid rent correctly, @Halyna_b_11.


Yes, you're correct the 150$ of prepaid rent should go to the liability account. To fix this, you'll have to create a prepaid rent liability account first. Then create a service item that will link to that account. Before doing so, I'd suggest consulting an account for a recommendation on the specific accounts to use to track the transaction.


To add an account follow the steps below:


  1. Click the Accounting menu on the left panel to choose Chart of Accounts.
  2. Tap the New button in the upper right to open the Account window.
  3. Click the Account Type drop-down and pick Other Current Liabilities or Long Term Liabilities.
  4. Select the appropriate category in the Detail Type drop-down.
  5. Enter a name for the account.
  6. Click Save and close.


Let me share this article for additional information: Add an account to your chart of accounts in QuickBooks Online.


Then, you can now create a service item that links to the liability account and use that item on a sales receipt or invoice when you receive the prepaid rent. For details on how to create a service item, see this article: Add product and service items to QuickBooks Online.


When the month for the prepaid rent comes around, you can create a sales receipt. Then follow the steps below on how to enter the service item for the prepaid rent:


  1. Go to the + New.
  2. Select Sales receipt
  3. Select the customer from the Customer dropdown. 
  4. Enter the sales info, such as the payment method.
  5. In the line, one enter the rent item created, with the quantity one and amount.
  6. In the line, two enter the rent item created, with the quantity negative one and amount.
  7. Click Save and send 


Once done, you can now save the zero-dollar transaction for the prepaid rent. Just click this article for details on how to create a sales receipt: Create and send sales receipts in QuickBooks Online. See screenshot for reference:


Feel free to visit our Sales and customers page for more insights about managing your company's income and customers.


If you have any other questions, just let me know and I'll be happy to help. Thanks again for reaching us and have an awesome day, @Halyna_b_11.

Level 1

How to record prepaid rent correctly

Thank you so much for your help!

Have a great day!

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