[Anonymous]

I know this is uber basic, but I’m probably overthinking the matter and in need of a reality check.

I am trying to interpret the journal entry for an Operating Lease Rent Expense, as Becker writes it on page F5-6:

Rent Expense _____________________$

_____Cash / Rent Payable___________$

I dont understand why they wrote it that way, although I know it was deliberate from looking at the example on the next page (on F5-7), where they calculate rent expense with free or reduced rent. I’m going to ignore the actual calculations, but will list the two types of entries for a Lessee’s 5-year rental agreement with $1000 payments each month and the first six months are free.

First 6 Months Journal Entries:

Rent Expense_______________________$900

_____Rent Payable __________________$900

Remaining 54 Months:

Rent Expense_______________________$900

Rent Payable _______________________$100

_____Cash / Rent Payable ____________$1,000

The $100 Rent Payable debit arises when the amount of the rent reduction was amortized over the full life of the lease.

I can kinda, sorta see why the Lessee has to (ironically) account for “free rent” in a liability account. The matching principle forces us to amortize the reduced amount for future payments, but it is still part of the monthly Rent Payable liability. So I guess the only way to lower it is with a debit to the Rent Payable liability account for that months amortized portion of the overall reduction.

But here again we see this mysterious “Cash / Rent Payable” combination of words and forward slash.

It would make more sense to me if they had written it like this:

Rent Expense_______________________$900

Rent Payable _______________________$100

_____Cash _________________________$1,000

Or possibly,

Rent Expense_______________________$900

Rent Payable _______________________$100

_____Rent Payable _________________$1,000

But why did they write it as they did? “Cash / Rent Payable”? To me, it looks like they are combining two contrary accounts (a liability, “Rent Payable”; and “Cash”, an asset) into one credited item.

Grrrr… This is what I cant stand about journal entries… I get so bogged down in the calculations, the journal goes flying out the window… But, if there is one thing I wish to do in all this exam studying, it is get the journal straight…

Any help much appreciated.

[Anonymous]

This is a basic “pay an expense” JE.
Recognizing / adding to an Expense is a Debit.
– to balance –
One Credits (subtracts from an Asset like Cash, or adds to a liability like Accts Payable”)
.

[Author]

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