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Re: How to handle periodic cash reciepts vs. non-periodic accounts payable?
- Subject: Re: How to handle periodic cash reciepts vs. non-periodic accounts payable?
- From: Richard Ellis <..hidden..>
- Date: Tue, 26 Sep 2006 15:05:16 -0400
On Tue, Sep 26, 2006 at 10:31:21AM -0700, Chris Travers wrote:
> 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?
Ok, yes, that makes more sense now, or at least I think it does.
If I'm understanding it correctly, another way to look at it is the
money received does not become income until after the tenant has
"used" the apartment for the month. If they pay their rent on Oct 1
for the month of October, and then suddenly decide to move out at
12:01am Oct 2 (assuming no lease clauses that would preclude this) then I
would return to them the amount of rent paid from Oct 2 through Oct
So it's a "liability" because it is money that I "owe" to them if
they do not remain in the apartment for the full month term.
In which case, I'm thinking I should I arrange things this way:
Incoming rents are received into an AR liabilities account, with the
payments linked to the customer (tenant) for which they are
On the last day of each month, I would then tranfer from the AR
liabilities account to an income account for the property the amount
of that month's rent.
What I don't see at this point is how to synchronize this with LSMB's
AR transactions and Cash receipts. Or am I trying to now use LSMB's
AR transactions and Cache reciepts in a manner for which they were