ch03-AFM101w2012

Whenthecompanydeliversthegoodsorservices

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Unformatted text preview: oods or services UNEARNED REVENUE is reduced and REVENUE is recorded. Cash received before revenue is earned: Cash Received Company Delivers Cash (+A) xxx Unearned revenue (+L) xxx Revenue will be recorded when earned. Unearned revenue (­L) xxx Service revenue (+R) xxx Financial Accounting LO 3 Revenue Principle situation #1 – cash received before revenue is earned 3-14 Typical liabilities that become revenue when earned include . . . CASH COLLECTED (Goods or services due to customers) REVENUE over time will (Earned when goods become or services provided) Rent collected in advance Rent revenue Unearned air traffic revenue Air traffic revenue Deferred subscription revenue Subscription revenue Financial Accounting LO 3 Revenue Principle situation #2 – cash received when revenue is earned 3-15 When cash is received on the date the revenue is earned, the following entry is made: Company Delivers AND Cash Received Cash (+A) xxx Revenue (+R) xxx Financial Accounting LO 3 Revenue Principle situation #3 – cash received after revenue is earned 3-16 If cash is received after the company delivers goods or services, an asset ACCOUNTS RECEIVABLE is recorded. When the cash is received the ACCOUNTS RECEIVABLE is reduced. Cash received after revenue is earned: Company Delivers Cash Received Accounts receivable (+A) xxx Revenue (+R) xxx Cash will be collected. Cash (+A) Accounts receivable (-A) Financial Accounting xxx xxx LO 3 Revenue Principle situation #3 – cash received after revenue is earned 3-17 Assets reflecting revenues earned but not yet received in cash include . . . CASH TO BE COLLECTED (Owed by customers) and already e arned as REVENUE (Earned when goods or services provided) Interest receivable Interest revenue Rent receivable Rent revenue Royalties receivable Royalty revenue Financial Accounting LO 3 3-18 The Matching Process Resources consumed to earn revenues in an accounting period should be recorded in that period, regardless of when cash is paid. Financial Accounting LO 3 3-19 The Matching Process situation #1 – cash paid before expense incurred If cash is paid before the company receives goods or services, an asset account, PREPAID EXPENSE is recorded. When the expense is incurred PREPAID EXPENSE is reduced and an EXPENSE is recorded. Cash is paid before expense is incurred: $ Paid Expense Incurred Prepaid expense (+A) xxx Cash (­A) xxx Expense will be recorded when incurred. Expense (+E) Prepaid expense (-A) Financial Accounting xxx xxx LO 3 The Matching Process situation #2 – cash paid when expense incurred 3-20 When cash is paid on the date the expense is incurred, the following entry is made: Expense Incurred AND Cash Paid Expense (+E) xxx Cash (­A) xxx Financial Accounting LO 3 The Matching Process situation #3 – cash paid after exp...
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