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Set Up Prepaid Rent When Creating a New Lease

Learn how to accept and account for short-term and long-term prepaid rent.

Samuel avatar
Written by Samuel
Updated this week

Overview

If a tenant prepays their rent, those funds are considered liabilities on your balance sheet until they are applied to charges and recognized as revenue. To record prepaid rent correctly, you’ll post the charge to a liability account, not a revenue account.

You can accept prepaid rent when creating a new lease. For a refresher, check out the article: Add a New Lease.

The Steps

You can accept prepaid rent when creating a new lease. For a refresher, check out the article: Add a New Lease.

  1. To create a new lease and set up prepaid rent, click Leasing on the main menu and click either Active Leases or Draft Leases.

  2. Click + New Lease button to begin.

  3. Continue through the New Lease wizard until you reach the section for Security Deposits.

  4. The Security Deposit tab is where you will be adding the charge for prepaid rent.

    1. 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.

    2. Next, click + Add another charge. In the dropdown menu for “What is this for?”, you would select Prepaid Rent from Liability.

    3. Enter the full amount the tenant paid for prepaid rent.

  5. Click Next to continue and complete the rest of the New Lease wizard.

  6. 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.)

  7. Click the Receive Payment button.

  8. 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.

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.

Next Steps

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