How to Account for Office Rent Expenses [New Regulations]

Office rental costs are expenses that many businesses have to pay regularly. The accounting of office rental costs is also specifically regulated by law according to each different case. Accordingly, accountants of each business need to master how to account for this expense to ensure all transactions comply with current legal regulations.

1. Learn about office rental cost accounting

Accounting for office rental costs is the recording of expenses related to a business’s office rental into accounting accounts. This includes expenses such as rent, electricity, water, internet, etc.

Accounting for office rental costs is an important accounting operation that directly affects the business results of the enterprise. Therefore, accountants need to master the regulations on office rent accounting to ensure businesses fully fulfill their tax obligations.

2. Office rental expense accounting account

“Which account is office rent paid into?” – One of the important factors that help determine the exact account number when accounting for rental expenses is the rental purpose. Based on the purpose of renting a house for what department it serves, the accountant will record house rental costs into the following accounts:

• If you rent a house for the purpose of a production workshop, rental costs are accounted for in account 627 (general production costs)
• If you rent a house for the purpose of being a sales facility or warehouse, the rental costs are accounted for in account 641 (sales costs)
• If you rent a house for the purpose of office space for company management departments, rental costs are accounted for in account 642 (business management costs).

3. How to account for office rental costs

Based on the form of payment, office rent accounting will be regulated into many cases as follows:

3.1 In case of full payment in advance

Based on the lease contract and payment documents, the accountant will determine the amount of money paid in advance to the office lessor. Specifically, the accounting into the account is as follows:

• Debit Account 331 (payable to seller)
• There are Account 111, Account 112

Note: If it is a prepayment such as an advance to the lessor, then account as above. In addition, it is necessary to clearly distinguish between advances and deposits. If the advance payment can be deducted from the rent to be paid, the deposit will only be returned at the end of the lease contract, or after a period of time as agreed between the two parties.

3.2 In case of paying office rent in advance for many periods

In the case of office rent paid in advance for many periods, the accountant will record it in account 242 (prepaid expenses). Accordingly, the accountant will periodically allocate costs to the corresponding accounts.

For example: Renting a house from January to June, paying 1 time in January, the accounting is as follows:

• Debit Account 242 – Prepaid expenses (Total amount)
• Debit Account 133 – Deductible value added tax (If there is a VAT invoice)
• There are Account 331, Account 111, Account 112

Periodically allocate the prepaid expenses:

• Debit Account 154, 627, 641, 642 (Depending on the purpose of renting the house, it should be accounted for as an expense)
• Credit Account 242 – Prepaid expenses

3.3 In case of deposit for office rental

In case an enterprise deposits office rent to the lessor, it shall be accounted for as follows:

Note: Advance payments or rental deposits do not require value-added invoices (according to Official Dispatch 13675/BTC-CST of the Ministry of Finance in 2013).

3.4 In case of paying monthly office rent

Enterprises that pay office rent or receive monthly invoices shall proceed with accounting as follows:

• Debit Account 154, 627, 641, 642 (depending on the rental purpose, accounted for in that expense account)
• Debit Account 133 (if any)
• There are Account 331, Account 111, Account 112,…

3.5 In case of office rental costs paid later

In the case of office rental expenses paid later or invoices received later, every month the accountant will record this expense in Account 335 (payable expenses) to monitor and ensure the correct calculation of expenses.

For example: The company rented an office from January to June but has not paid yet. Only in June will the company make payments and issue invoices.

Postpaid office rental costs are accounted for as follows:

• Debit Account 154, 627, 641, 642 (depending on the rental purpose, accounted for in that expense account)
• Credit Account 335 – Accrued expenses (Expenses incurred but not actually paid)

Accounting when making payment or receiving invoice:

• Debit Account 335 – Accrued expenses
• Debit Account 133 (if any)
• There is Account 331, Account 111, Account 112, … (If it is during payment)

4. Example of accounting for a company’s office rental costs

To easily visualize how to account for office rental costs, let’s look at the detailed accounting example below:

On January 1, 2022, company X signed a house rental contract with Ms. Y for the purpose of working as an office. The office rental term is 12 months, each month must pay rent of 10 million VND. On the same day of signing, company X paid Ms. Y 10 million VND in advance.

By January 10, 2022, after completing the legal procedures, company X paid Ms. Y the remaining amount of 110 million VND. Thus, the accounting method for office rental of company X in 2022 is done as follows:

January 1, 2021:

– Accounting for prepayment:

Debit Account 331: 10,000,000

Account 111: 10,000,000

– Accounting for payable rental expenses:

Debit Account 242: 120,000,000

Account 331: 120,000,000

January 10, 2021:

– After paying the remaining amount to the lessor:

Debit Account 331: 110,000,000

Account 112: 110,000,000

– Monthly allocation to expenses:

Debit Account 642: 10,000,000

Credit: Account 242: 10,000,000

5. A few notes about taxes on office rental costs

In addition to understanding which account office rent is accounted for, businesses also need to pay attention to the following taxes to avoid errors in tax payment:

In case the total rental value is less than 100 million/year, businesses will be exempt from license tax, personal income tax and value added tax.
In the opposite case, if the total rental value is over 100 million, you must fully pay license tax, personal income tax and VAT.

6. What should you keep in mind when calculating office rental costs?

To properly account for office rental costs, accountants need to pay attention to the following issues:

– Accountants need to base on the purpose of office use to determine the appropriate accounting account.

– Office rental costs can include: basic rent, management fees, maintenance fees and other services such as electricity, water, internet, etc. Therefore, accountants need to clearly classify and record them. according to the corresponding accounts in the accounting books.

– If you rent an office on a monthly basis, account the office rent at the end of the month. If you rent an office on a yearly basis, account for the office rent at the beginning of the year.

– Office rental costs are accounted for when the business receives the rent invoice. If a business rents an office prepaid for many periods, accountants need to allocate office rental costs according to the period of use.

– To properly account for office rental costs, accountants need to prepare all documents: rental contract, rent invoice, payment documents, documents proving costs incurred related to the office rental. Office rental (if any).

– Accountants need to comply with tax laws when accounting for office rental costs.

– For office rental costs with VAT invoices, accountants need to account for both the value of purchased goods and services (office rental costs) and the deductible VAT portion.

– For postpaid office rental expenses, accountants need to track expenses incurred during the period to ensure the correct period of expenses.

Accounting for office rental costs is an important accounting operation, directly affecting the financial reporting results of the business. Therefore, accountants need to master accounting regulations to ensure the accuracy of expenses and avoid errors during the tax declaration process. Hopefully through the above sharing of Maison Office, you have obtained the most useful information to apply in practice!

Bui Duc Huy

Editor and content team manager at Maison Office.

With over 5 years of experience in consulting and extensive content editing in the real estate services and interior design field. Sharing valuable information with customers, partners, and attracting millions of views.