In the case of the landlord referred to above it has been suggested that the rent received in advance for next year should be treated as a liability. The landlord challenges this treatment, pointing out that a liability is an obligation to pay, whereas he has no intention to repay the rent even if the tenant should leave the premises by the year-end.

What then is the justification for transferring the unearned portion of rental income to a liability account?

Data from Rent received:

The balance remaining in the Rent receivable account, after removing the amount deferred, is transferred to the Statement of income, while the balance in the account reporting the deferred income is included in the Statement of financial position under current liabilities.

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Rent receivable account (income) £ Rent received in advance 6,000 Cash a/c £ 30,000 Rent received in advance account (liability) £ Rent receivable a/c 6,000