REM Real Estate received a check for $27,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $27,000.Financial statements will be prepared on July 31.REM Real Estate should make the following adjusting entry on July 31:

Debit  Unearned Rent Revenue $4,500

Credit Rent revenue                    $4,500

Explanation:

Amount received in advance is recorded as a debit to cash account and a credit to deferred or unearned revenue. When revenue is earned, the amount earned is credited to revenue and debited to the deferred revenue account.

As such, where REM Real Estate received a check for $27,000 on July 1 which represents a 6 month advance payment of rent on a building, initial entries required are

Debit  cash account $27,000

Credit  Unearned Rent Revenue  $27,000

when financial statements are prepared for July 31, one month revenue would have been earned. This is equivalent to

= 1/6 × $27,000 = $4,500

Adjusting entries required

Debit  Unearned Rent Revenue $4,500

Credit Rent revenue                    $4,500

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