the adjusting entry for accrued revenues This is a topic that many people are looking for. thetruthaboutdow.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, thetruthaboutdow.org would like to introduce to you Module 4, Adjusting Entries, Video 4, Accrued Revenue. Following along are instructions in the video below:
“Else here and today. We ll be talking nabout accrued revenue. Adjusting entries nand their their impact on the accounting equation. What are accrued revenues.
We already know nwhat accrued it means to increase nor gather together revenue means that we nhave earned something because what the company nhas done for their customer or client. So similar to accrued nexpenses. Which we covered in our last. Nvideo accrued revenue means to gather together the nrevenue that the business has earned.
But have not as yet nrecorded or received in cash at period end at period end. What are we ngoing to do about these revenues that we have earned. But not nrecorded or received in cash earned means that we nhave delivered a good or provided a service. So nwe have to record a revenue not received yet means nwe have a legal right to collect from a customer nor client in the future and that s an asset at every period nend we ll recognize the revenue that was nearned but not recorded and the cash.
The company has na legal right to receive because they ve done nwhat they needed to do in order to earn revenue let s do an example to nsolidify our understanding and actually see nthe entries that impact the accounting equation. Abc company. Provided a nservice to a customer for 800 on december 30. The company records their nadjusting entries at year end and their year end nis december 31.
No invoice was sent nout. Nor was cash collected from the ncustomer. At december 31. On january 8.
Of the nnext year abc company sends an invoice out nto their customer on february 12 of the nnext year the customer pays their outstanding ninvoice in full what entry. If any must nbe recorded on december 31. What did we earn on december 31. We earned revenue because nwe provided a service to a customer on december 30.
When we substantially ncomplete. What we have to do for our ncustomer or client. We have the right to nrecognize and record revenue. Our revenue is 800.
What else can we record the customer has nnot paid us yet so do we have a legal nright to collect cash from our customer in the future. Yes. We do and that means we can record. Nan accounts receivable as an asset.
Because it has nfuture benefit for the company. Accounts receivable will nbe increased by 800 note is this an nadjusting entry. Absolutely how do we know that because this is an ninternal transaction. The customer did not nreceive an invoice and they have not come nknocking at our door to demand that we record na receivable from them.
We have to record the nasset accounts receivable because we know we nhave a legal right to collect cash in the nfuture and because we need to ensure that nour assets are properly stated at every period end therefore we record. What nwe have a right to collect because the customer nhas not yet paid its an adjusting entry because nit s made by the company to recognize that nsomething has been earned. But not yet received in cash. Now let s fast nforward to january 8.
Remember whenever we look at nany scenario stand in the date. And don t look forward on january 8. Abc. Company sends nout an invoice to the customer.
What entry if any nshould be made should we record accounts nreceivable in revenue. Many students do but they nwould be totally wrong. We are sending out na piece of paper to confirm what we have already nrecorded on december 31. When we send out a nfollow up invoice.
We should never record anything. This is an event nnot. A transaction and therefore the correct nentry is no entry at all now let s go forward nto february 12. Again.
We have to nstand in that date and consider the impact on nthe accounting equation on february 12. The customer npays their outstanding invoice in full what did we get we got cash so cash goes up by 800 what about the other nside of the entry. What did we give away many students say the other side nof the entry should be revenue. But that would be incorrect why because we have not done nanything else for the customer nor have we earned more revenue.
We already recognized nand recorded the revenue on december 31. So we nshouldn t do it again. So what s the other nside of the entry. Remember that at december n31.
We recorded an accounts receivable an asset of 800 that asset is still sitting nin. The accounts receivable account. We received the cash from nthe customer on february 12. So do we still have an nasset with future benefit.
The answer is no not anymore and therefore we nhave to recognize that we received ncash and we have to get rid of the naccounts receivable. Because it s been collected and nwe. No longer have a legal right to collect anything else so the other side nof. The entry is a reduction of naccounts receivable because we collected the cash.
What type of entry is this it s a transactional entry nbecause. It s an exchange between two parties. Plus. It involved ncash and we know that whenever cash nchanges hands.
It s a transactional entry. It s also an nexternal transaction. Because it s an exchange between ntwo parties involving cash. External transactions are nalways transactional entries.
Now let s look at nboth entries. Together. Remember that the first nentry is an adjusting entry made at the end nof the period or year. It s an internal transaction nrecording.
The fact that the company earned nrevenue because they provided a service and an asset nbecause. They have a legal right to collect cash in the future. The following year. When the ncompany sends out an invoice they have no entry when they finally collect nthe cash from their customer.
They have a right to record na transactional entry remember that this is nan external transaction because they received cash nfrom an outside party and their asset naccounts receivable decreases. Because they ndon t have any further right to collect cash in the future. Let s compare unearned nrevenue. Adjusting entries to accrued revenue nadjusting entries.
So we can see the nsimilarities and differences unearned revenue nstarts as a liability with a transactional entry nsometime during the year and follows with an adjusting nentry at the period or year end to recognize the nrevenue has been earned and the liability nhas disappeared. Accrued revenue starts as na revenue and asset using an adjusting entry and nin. The following year. Uses.
A transactional entry nto. Recognize cash received both have transactional nentries and adjusting entries. The adjusting entries are always nat the period or year end. But the unearned has na transactional entry before the adjusting entry.
The accrued revenue has na transactional entry after the adjusting entry keep that in mind nwhen. You re working on adjusting entries nand trying to decide which entries to make first we have now covered nall the different types of adjusting entries in our next video nwe re going to look at a more complicated and ncomprehensive question. ” ..
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