Re: How to handle periodic cash reciepts vs. non-periodic accounts payable?

["Chris Travers" <..hidden..>]

On 9/26/06, Richard Ellis <..hidden..> wrote:

> Forgive me for asking some questions that the answers to may seem
> obvious to an accountant, but as I am not an accountant, well:
>
> Why would rent payments be booked as liabilities because they are
> paid in advance?
>
> If they are booked as liabilities, how would they then be handled to
> become "income" to show as earnings in the business?

Ok, you get paid-- your asset and liability accounts increase.   This
is because the payment is in exchange for future obligations.  Indeed,
think of liabilities as "obligations" and it makes more sense.  In
essence this is "unearned income."

Now, as the tenant stays in the place, the obligations decrease and
the income increases because this income is now being earned.
Normally this is posted periodically.

Now, this is how it works in abstract.  Another way to do it is to
post it as income and revenue and then adjust downward at the end of
the accounting period for unearned income.

Does this make sense?

Best Wishes,
Chris Travers