Why does deferred rent receivable arise?
Under lessor accounting for operating leases, a landlord usually recognises fixed rent evenly over the lease term. When billed rent is lower early in the lease, because of a rent-free period or scheduled increases, recognised income exceeds billed rent. The difference builds up as an asset on the balance sheet.
Later in the term, billed rent exceeds the straight-line amount and the balance unwinds, reaching zero at the end of the lease if nothing changes. Lease modifications, early terminations and collectability assessments can require adjustments.
See also: Straight-line rent and Lease accounting (ASC 842 / IFRS 16).
What does deferred rent receivable look like?
Example (illustrative figures). A 3-year lease bills $90,000, $100,000 and $110,000. Total fixed rent is $300,000, so straight-line income is $100,000 a year. In year 1, income of $100,000 exceeds billings of $90,000 and the receivable is $10,000. Year 2 adds nothing. In year 3, billings of $110,000 exceed income by $10,000 and the receivable returns to zero.
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