Bookkeeping Tip for Real Estate Investors: How to Record Prepaid Rent in QuickBooks Online

Understanding Prepaid Rent

Prepaid rent is one of the most common bookkeeping questions real estate investors face especially when using QuickBooks Online (QBO). When a tenant pays rent in advance, it can be tricky to know whether to record it as income or as a liability. In this post, I’ll walk you through exactly how to record prepaid rent correctly in QBO, whether you use the accrual or cash method. Getting this right helps keep your books accurate, your financial reports reliable, and your year-end much smoother.

Example Scenario

Your tenant pays $1,600 for March’s rent in February.

𝗦𝘁𝗲𝗽 1: When Rent Is Received (Before It’s Earned)

𝘑𝘰𝘶𝘳𝘯𝘢𝘭 𝘌𝘯𝘵𝘳𝘺:

   Cash……………………………………1,600 Dr

      Unearned Rent Revenue………………………….1,600 Cr

This entry records the cash received but recognizes that you still owe your tenant the accommodation.

𝗨𝗻𝗲𝗮𝗿𝗻𝗲𝗱 𝗥𝗲𝗻𝘁 𝗥𝗲𝘃𝗲𝗻𝘂𝗲 is a current liability on your 𝗯𝗮𝗹𝗮𝗻𝗰𝗲 𝘀𝗵𝗲𝗲𝘁 – not income yet.

Recording in QuickBooks Online

When you see the rent deposit in your bank feed, select the Account as Unearned Rent Revenue. If that account doesn’t exist yet, you can create it under your Chart of Accounts as a Current Liability (I’ll cover how to create this account in a future blog post).

Pro tip: Add a clear memo! For example: “Prepaid rent for March.”  This makes reviews or audits much easier down the road.

Step 2: When the Month Ends and Rent Is Earned

𝘈𝘥𝘫𝘶𝘴𝘵𝘪𝘯𝘨 Journal 𝘌𝘯𝘵𝘳𝘺:

   Unearned Rent Revenue………….1,600 Dr

   Rental Income………………………………………..1,600 Cr

This entry reduces your liability and recognizes the rent as income on your profit and loss statement in the month it’s earned.

Recording in QuickBooks Online

In QBO, create this entry manually by selecting + New → Journal Entry

Timing Tip

I recommend making adjusting journal entries at the end of each month when you review your financials. Label these entries as Adjusting Journal Entries and leave detailed notes.  It’s a lifesaver when reconciling or preparing for year-end.

𝗖𝗮𝘀𝗵-𝗕𝗮𝘀𝗶𝘀 𝗖𝗼𝗺𝗽𝗮𝗿𝗶𝘀𝗼𝗻

If you use 𝗰𝗮𝘀𝗵-𝗯𝗮𝘀𝗶𝘀 𝗮𝗰𝗰𝗼𝘂𝗻𝘁𝗶𝗻𝗴, you’d simply record it as income when received.

𝘑𝘰𝘶𝘳𝘯𝘢𝘭 𝘌𝘯𝘵𝘳𝘺:

   Cash……………………………………1,600 Dr

      Rental Income…………………………………...1,600 Cr

In QBO, this means selecting Rental Income instead of Unearned Rent Revenue from the bank feed.

Simple, but it can lead to inaccurate reports if you’re managing multiple months of prepaid rent.

Why Accurate Rent Tracking Matters

Recording prepaid rent properly helps you:

• Avoid overstating income in one period and understating it in another

• Keep your tax filings accurate and defendable

• Maintain a clear picture of your true monthly performance

• Stay fully compliant with CRA’s accrual-based reporting rules for businesses

Final Thoughts

Keeping your books accurate helps you make smarter financial decisions and stay tax-ready all year.

If you’d like help setting this up properly in QuickBooks Online, I offer a free 30-minute consultation for real estate investors.