Prepaid Rent and QuickBooks

Hi there, Linda Artesani, Artesani Bookkeeping. So today we're going to talk about prepaid rent. It's an account that will happen just like the security deposit one that we talked about last week, and it's an important transaction. I think it's one of the ones that people can get a little confused on. There's also prepaid expenses, and I can get into that a little bit in maybe another video. I've got my buddy here, Simba. He's hard at work helping me. So let's go to our sample file here. So the first thing you need to do is set up the chart of accounts, and you're going to set up this prepaid rent account because it's probably not on your default records unless you're working in an existing rental property kind of account. So I'm just going to come over here and edit it. I'm going to show you what kind of account it is. It's another current asset account, and basically the reason for that is you're collecting rent and In a lot of cases, sometimes you collect last month's rent. So when you traditionally, if your state allows for it, so you need to check the rules and the laws. Tenants like to say, just walk out on that last month's rent and just say, put it towards my security deposit. So a lot of landlords collect the last month's rent in the beginning when the honeymoon period when they're all excited about moving into your apartment. So that way you've got You've got the funds so they don't walk out because security deposit is meant to be, like I mentioned last week, it's meant to be used for damages, right? And damages, there's a fine line around that too, and it varies by state. But for the most part, logically, if you think about it, normal wear and tear is not considered damages. If you could see over all the years I've been doing this kind of work, What I've seen in our apartments, it's amazing. Some people leave it spotless, just like it was the day they moved in, and then some people just live in it, didn't clean it the whole time they were there, and move out. And it's like, how do they live there? I mean, I've seen some bathtubs and some refrigerators and some stoves that you think, wow, I can't believe a human being lived like this. And they walk out and then they're shocked that the landlord has to pay so much extra to clean it. The government allows for us to take some of the security deposit to offset the, the extra expense that wouldn't be part of normal wear and tear. So you create this prepaid rental account. All you do is come to your chart of accounts, come to New, and then create another current asset for that. So next year in the honeymoon period, the tenant moves in and they want to— they give you, you know, $1,000 for their security deposit, $1,000 for their first month's rent. And this person moved in last year in October, and then they're paying for next October's rent, so they're giving me that. So I don't want to show that as revenue yet because it's not my revenue, just like with the security deposit, that was not my revenue. That's just money I'm holding that I'm hoping to give back and not have damages. The prepaid rent, I don't want to show it as revenue in 2017 because it's going to be earned revenue in 2018. So that's why I stick it in that prepaid rent account. So I'm going to receive the payment here from Linda Hyner. She's now paid the rent. She's moved in. Everything's wonderful. She lives there for a year. She's paid her rent or prepaid her liability. Now it's time for her to come to that October billing. Now it's October of 2018. She's— her rent is due. But now I don't need her to pay me this because I already have this money. But now I've got to move it out of my prepaid rent account, move it into my revenue account. So I'm creating an invoice for rent, right? Here's my invoice for rent. Now I got to show the payment. So the easiest way and the best way to do it is not a journal entry, right? We try to use the transactions when we can in QuickBooks. We don't want to go down the journal entry road unless we have to. So I created a credit memo and I created an item just like I used in that first invoice. So I created an item that's going to point towards that prepaid rent account. account. And it's already coded in, it points to that account, and I'm now going to use that to the credit memo to show and reflect as my payment of that last month's rent. So all you have to do for that— I'll take you to that— to create that item is you're going to come up to the gear, create the item for prepaid rent, just like we did with, um, we did with the, uh, the security deposit. We created an item for that. So I'm going to come over here and edit it to show you. Okay. Just called it prepaid rent and prepaid last month rent. I like to put the words in; it just saves typing. And then I point it towards my income account, which really isn't an income account, but it's my prepaid rent account. Save and close. So let's go over to the balance sheet and take a look at how the balance sheet shows the transactions that hit that part of the it hit that part of the account. So let's go to the balance sheet. I want to see that account zero, right? Because now she's moved out. So I've got this year to date here, and you can come in here because the balance sheet's continuous with the accounts that are on it. So I'm at zero, and if I showed all dates, I'm going to see where I collected that on that first invoice, right? If I click on here, I'm going to see that this is that $3,000 invoice, and that one piece went to the prepaid rent account, and then the credit memo where I'm using it. Now if I go over to the reports, I'm going to come to the profit and loss report now. This year to date. Now I should see in my rental income account Linda Heiner because now I've earned that income. So that's how you do it. It's pretty simple, pretty quick here, a nice short video to give you the flow of the prepaid rent account, and I'll map all that out in the blog post itself. But I just wanted to show you how easy it is to create these accounts. You know, prepaid expense is pretty much the same thing. You're going to pay an expense ahead of when it's Actually should be applied. In that case, it would be like an insurance bill. If you paid an insurance bill for 2017— 2018 and 2017, say your date range is August to August, and you paid the bill in full in August 2017, well, you're not going to show that whole expense in 2017 because the expense really is— should be the term of the insurance bill, which is going to include the 8 months in 2018. So you want to— Or the 7 months. you want to show that in the proper year. And that's just a way to account for it. It's another prepaid expense. It's another asset. You're going to put it on the books. And then you will probably use either a— you might use a recurring journal entry in that case just to move it out of prepaid insurance and move it down into your insurance account. So I hope that's helpful. If you have any suggestions for video, I'm open to it. I hope you're watching our community live ones. Matthew and I are going to do some really fun things at QuickBooks Connect coming up, interview people. So I hope you follow us and follow those videos because it's gonna be— I think it's gonna be really great. I'm looking forward to it, and see you next week. Bye now!