We have 2 rentals where the tenant paid first month’s rent, security deposit and last month’s rent. First month’s rent is categorized as rental income and security deposit is categorized as ‘Security Deposit’, but Stessa also categorized the last month’s rent as income. I don’t see a separate ‘prepaid rent’ or something similar to not have this added to overall Income statement. How are other people handling this?
@jaiminswita Great question. Stessa is a single-entry accounting platform. In basic terms, it can only handle +/- transactions in real time. It doesn’t understand “money owed” or “money recognized” at other times. That is when you need to upgrade to double-entry accounting which brings balance sheets into the mix - categories such as ‘accounts receivable’ and ‘accounts payable’.
With that said, it almost doesn’t matter. IRS publication 527 states that:
Advance rent. Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use.
My interpretation is that you need to record it as income for the tax year it was received and make a note that it is prepaid.
I am not a tax professional, attorney, or financial advisor. The information provided here is for informational and entertainment purposes only and does not constitute financial, tax, or legal advice. You should consult with a qualified professional regarding your specific situation before making any financial or tax-related decisions.
Hope that helps.
-Tom
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