Overview
If your tenant decides to prepay their rent, these will be considered liabilities on your balance sheet until they are used or withheld for charges and they become revenue. To record the payment for prepaid rent correctly, the charge on the lease will be to a liability account rather than a revenue account.
The Steps
Accept Prepaid Rent While Creating a New Lease
You can accept prepaid rent when creating a new lease. For a refresher, check out the article: Add a New Lease.
To create a new lease and set up prepaid rent, click Leasing on the main menu and click either Active Leases or Draft Leases.
Click + New Lease button to begin.
Continue through the New Lease wizard until you reach the section for Security Deposits.
The Security Deposit tab is where you will be adding the charge for prepaid rent.
Click Yes here for Security Deposits. If you are collecting a regular Security Deposit, enter the amount for that first. Then click Show Advanced Options.
Next, click + Add another charge. In the dropdown menu for “What is this for?”, you would select Prepaid Rent from Liability.
Enter the full amount the tenant paid for prepaid rent.
Click Next to continue and complete the rest of the New Lease wizard.
You should now be viewing your newly created lease. Click the Transaction tab. You should see the posted charge for the Prepaid Rent there (or if it's combined with the Security Deposit, a --Split Values-- charge.)
Click the Receive Payment button.
On the Receive Payment window, enter the tenant's payment and allocate that towards the Prepaid Rent charge. Click Save.
If you go to the Rent tab now, you'll see that there is now Prepaid Rent being held.
The Outstanding Balance will now show up as $0.00. The next step in the process will depend on whether you want to apply the prepaid rent as a recurring credit or if you want to apply it on a month-to-month basis, manually.
Accept Prepaid Rent on an Existing Lease
You can also enter prepaid rent on an existing lease if your tenant decides to prepay their rent at any time during their lease. This is actually a really simple process that requires you to post a charge and receive payment. Learn more about Posting a Charge on a Lease.
To accept prepaid rent on an existing lease, select Leasing on the main menu and then click Active Leases.
Click the lease you will be working on from the list.
On the Overview page of the lease, select the Transaction tab. Then click the Post Charge button.
On the Post Charge window, enter the relevant information. The most important information to enter here is the Account (Liability > Prepaid Rent), an optional Description, and the Amount of the prepaid rent.
Click Save.
You’ll now be back at the Transaction page. Next, you’ll want to click on the Receive Payment button.
From the Receive Payment window, enter the Amount and Payment method.
Toggle off Automatic Pay and manually apply the amount received to the prepaid rent charge.
Click Save to finish.
If you go to the Rent tab now, you'll see that there is now Prepaid Rent being held.
Automatically Apply Prepaid Rent to Upcoming Rent Charges With Recurring Credits
If your tenant has prepaid several months' worth of rent, for instance, the whole year, you can set up a recurring credit each month that will be put towards that month’s rent. Here’s how that’s done. Learn more about Adding a Recurring Credit to a Lease.
To apply prepaid rent to upcoming charges via recurring credits, click Leasing on the main menu and then click Active Leases.
Find the lease you need to apply recurring credits to and click on it.
On the Overview page of the lease, select the Rent tab. Then click the Recurring Credit button.
From the Recurring Credit window, uncheck the option for “repeat until the end of the lease.”
You’ll want to set the Start Date and End Date for the recurring credit and the Frequency.
For Account, select Prepaid Rent under Liability. For the Amount, enter the amount that each month’s rent will be.
Click Save to complete the process.
This will create a credit each month (similar to a withholding deposit) and apply that to the rent charge while deducting the amount from the Prepaid Rent deposit.
Apply the Prepaid Rent Deposit to the Current Month’s Rent Charge
For each rental payment period, the system will automatically post a rent charge for whatever the rent is. You can manually Withhold Deposit every month to pay for the rent charge. Learn more about withholding a deposit here: Withhold a Lease Deposit on an Active Lease.
To apply a one-time payment from the prepaid rent account, click Leasing on the main menu and then click Active Leases.
Find the lease you want to apply prepaid rent to and click on it.
On the Overview page of the lease, select the Deposits tab. Click the Withhold Deposit button in the upper-right corner.
In the Withhold Deposit window, enter a Due Date, and then under your Prepaid Rent deposit account, enter the rent amount under Amount to Withhold. (If there are any other deposits listed, enter $0.00 for those)
Click Save to complete the process.
Things to Consider
Prepaid Rent is a liability account. That means that when you charge and accept payment to a Prepaid Rent account, it will appear in the Deposits tab on the lease. You are holding these funds for future use to pay rent charges each month when they are posted. This way, the correct amount of rent is collected each month as revenue.
Prepaid Rent will show up as liabilities being held in reports.
For Prepaid Rent to be turned from a liability to a revenue account, the rent charge needs to be posted first. This way, withholding the deposit or applying a credit will go towards that rent charge.