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My daughter opened a beauty salon last June.
She paid a 3 months rent deposit (£2800.00) which she will get back in the end of the 3 years lease.
She got 3 months free rent to to some renovation work.
Can I categorize the deposit as rent and goes to the P&L as an expense or goes to the balance sheet as prepayments.
thank you in advancehey ruileal,
You will have to take the deposit to the Balance sheet as a non-current asset because u will receive it after 3 years which is a long term. You can call it as “refundable deposits”. Non-current assets are those which are consumed for more than a year. Prepayments are “expenses” that are paid before they are due and they are expected to be consumed in “a year or less than a year” in which your case is not as the rent deposit is for “more than a year”🙂
Hi Ruileal,
I agree with plen, the benefit of rent deposit would be enjoyed by your daughter for longer term of 3 years. As such it could you should treate this expense as a Non current asset and show in you balance sheet. So I am sure that this amount should not go to your profit and loss account.
Another point you mentioned was about “Prepayment”.Prepayment would mean that any expense for which you have paid early and then you enjoy the benefits of it. However as u mentioned that She enjoyed 3 month free rent and also u did mentioned that its a refundable deposit which would be returned to your daughter by end of three year. These both things are different. As such you cannot show it as prepayment.
However if the deposit was non refundable and your daughter have enjoyed 3 months free rent, in that case u could probably show as expense in profit and loss account.Hope its helps.
Feel free to contact if you think I have made u more confused. 🙂
Regards
Raj
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