Neamed revenues unearned revenues reflect cash

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neamed revenues Unearned revenues reflect cash received from customers before any services or goods are provided; an example is cash received from patrons for tickets to an upcoming concert. te the adjustment required with prepaid expenses, assume that Apple pays $3,000 cash beginning of this year to rent office space, and that this allows Apple to use the space for the ear and two additional years. When paid, the prepaid rent is an asset for Apple (it now con- the space, which is expected to provide future benefits for its business). At the end of the first one-third of the Prepaid Rent asset is used up. Apple, therefore, removes that portion from its t::::::i::!'ZX:e sheet and recognizes it as an expense in the income statement. The beginning-year payment _ear-end expensing of the rental asset are recorded as follows: Balance Sheet NQ.ocash Assets liabil'- "+ Contrib. + ities Capital ion 39ginning- ,000 -3,000 +3,000 ! -,:y- f Cash P~~~id = \ = ~~~~L""""""""";:~""""""""""""""····················~~~···{·················:;,::O=·~1,;~: ... expense R - E' I Rent Expense- 000 ~ -~ ! -' ..... ------------ ..---.- ------ ----- -------- ------------ ----- ---- ---- --------- ------------ j,------------- ---- ----- --- --------- ----- ---- ----- ------ , PPRNT 3,000 I Cash I 3,000 RNTE 1,000 PPRNT 1,000 RNTE 1.000 I PPRNT I 1,000
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To illustrate unearned revenues, assume that Apple receives $5,000 cash in advance of providing services to a client. That amount is initially recorded as a liability for services owed the client. Later, when Apple provides the services, it can recognize that revenue since it is now earned. The receipt of cash and subsequent recognition of revenue are recorded as follows: 2-25 Module 2 I Overview of Business Activities and Financial Statements Cash 5,000 UR 5,000 Cash 5,000 I UR I 5,000 UR 5,000 REV 5,000 UR 5,000 I REV I 5,000 WE 100 WP 100 WE 100T WP r 100 WP 100 Cash 100 WP 100 I Cash 100 ~ Income Statement Balance Sheet " I Cash Noncash Liabil- Coritrib. Earned ~-~-F-, -==R=e=v=-==;;==Ex=pe=n=-==-" Net Transaction Asset + Assets = ities + Capital + Capital \ enues - ses = Income! a, Receive pi\ $5,000 cash +5,000 +5,000 l " in advance Cash = Unearned ~i=;'················································· "="": ~--- ..-------------- -------------.- --..---. oqnition -5,000 +5,000 ' +5,000 +5,000 of $5,000 = Unearned Retained Revenue - = services rev- Revenue Earnings enue earned j ~ _~ _ w _~ _ w _ ~ H H H H __ H ,.)::. H H w' w w' H __ "'. = One of two types of accounts arises when cash is received or paid after recognition of revenue or expense. Accrued expenses Accrued expenses are expenses incurred and recognized on the income statement, even though they are not yet paid in cash; an example is wages owed to employees who performed work but who have not yet been paid. Accrued revenues Accrued revenues are revenues earned and recognized on the income statement, even though cash is not yet received; examples include accounts receivable and revenue earned under a long-term contract. To illustrate accrued expenses, assume that $100 of wages earned by Apple employees this period is paid the following period. The period-end adjustment, and subsequent payment the following.
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