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Accrued Revenue

Balance Day Adjustments. Accrued Revenue. Your father is very angry! Due to Economic crisis, the company your father is working for is unable to pay him salary for this month. However, his salary will be delayed till next month.

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Accrued Revenue

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  1. Balance Day Adjustments Accrued Revenue

  2. Your father is very angry! Due to Economic crisis, the company your father is working for is unable to pay him salary for this month. However, his salary will be delayed till next month.

  3. Assume that your father is earning a monthly salary of $5 000. The company will pay in total of $10 000 to your father next month ($5 000 x 2), being one month of salary owing to your father. This owing salary is known as ACCRUED Salary. This applies same to firms whereby revenues owing to them is known as Accrued Revenues. Definition Are revenues earned for the current accounting period but not yet received as cash payment.

  4. Accrued Revenue/Outstanding Revenue • Mr Tan sub-lets a building for Phua CK for a monthly rental of $1 000. Due to Phua’s negligence, Mr Tan does not receive $12 000 for period from January to December 2000. Instead Mr Tan only receives $5 000 from Phua. Scenario 1

  5. Accrued Revenue/Outstanding Revenue End of accounting period – December 2000 Should have received : $ 12 000 Only received : $ 5 000 Outstanding revenue : $ 7 000 This owing amount of $7 000 is also known asAccrued Rent Revenue. Mr. Tan still owes PCK Ltd $7 000 that was not paid for the year of 2000.

  6. Accrued Revenue/Outstanding Revenue 1 Jan 2000 31 May 2000 31 Dec 2000 $ 5 000 received $7 000 owing $12 000 earned JOURNAL Date Particulars Debit Credit Year 2000 $7 000 Dec 31 $7 000 Accrued Rent Revenue Rent Revenue

  7. Accrued Revenue/Outstanding Revenue RENT REVENUE a/c Year 2000 Dec 31 Bank $5 000 Year 2000 Dec 31 Profit & Loss $12 000 Accrued rent $7 000 Revenue $12 000 $12 000 PROFIT AND LOSS a/c Year 2000 Dec 31 Rent $12 000 Revenue

  8. Accrued Revenue/Outstanding Revenue ACCRUED RENT REVENUE a/c Year 2000 Dec 31 Year 2000 Dec 31 Bal c/d $7 000 Rent Revenue $7 000 $7 000 $7 000 Year 2001 Jan 1 Bal b/d $7 000 BALANCE SHEET AS AT 31 DEC 2000 Current Asset Accrued Revenue $7 000

  9. Balance Day Adjustments - Accrued Revenue • Definition • Nature of the entry - Debit or Credit entry? • Distinguish the differences in adjustments between the Accrued Expenses and Accrued Revenues Summary

  10. Balance Day Adjustments Prepaid Revenue

  11. Balance Day Adjustments You have found a part-time job in MacDonald for three months. Your monthly salary is $500. By the end of the first month, you should have received $500 of what you have earned. However, the manager is such a nice person that he gives you $1 000. (Two months’ salary). He understands that you need money to enjoy your school holidays.

  12. Balance Day Adjustments Received : $500 x 2 (Two month’s salary) = $1 000 Earned : $500 Paid in advance : $500 This prepaid of salary (revenue) is known as Prepaid Revenue /Outstanding Revenue. $500 is the prepaid Revenue.

  13. Prepaid Revenue/ Outstanding Revenue DEFINITION Are revenues received in advance for which the services not yet rendered/earned in the particular accounting year. Hence the received cash for such revenues is not considered as revenues for the current accounting year.

  14. Prepaid Revenue/ Outstanding Revenue • Recall that Mr Phua CK decided to pay in advance his rents to “save face”. Hence Mr Tan received $18 000, in which $12 000 is the revenue earned for the accounting year of 2001 and $6 000 is prepaid revenue. Scenario 2

  15. Prepaid Revenue/ Outstanding Revenue 1 Jan 2001 31 Dec 2001 31 June 2002 $ 12 000 earned $6 000 in advance $18 000 received JOURNAL Date ParticularsDebitCredit Year 2001 $6 000 Dec 31$6 000 Prepaid Rent Expense Rent Expense

  16. Prepaid Revenue/ Outstanding Revenue RENT REVENUE a/c Year 2001 Dec 31 Bank $18 000 Year 2001 Dec 31 Profit & Loss $12 000 Prepaid rent $6 000 Revenue $18 000 $18 000 PROFIT AND LOSS a/c Year 2001 Dec 31 Rent $12 000 Revenue

  17. Prepaid Revenue/ Outstanding Revenue PREPAID RENT REVENUE a/c Year 2001 Dec 31 Bal c/d $6 000 Year 2001 Dec 31 Rent Revenue $6 000 $6 000 $6 000 Year 2002 Jan 1 Bal b/d $6 000 BALANCE SHEET AS AT 31 DEC 2001 Current Liabilities Prepaid Revenue $6 000

  18. Balance Day Adjustments - Prepaid Revenue • Definition • Nature of the entry • Distinguish the differences in adjustments between accrued revenues and prepaid revenues Summary

  19. Practice! Accrued & Prepaid Revenues

  20. Practice - Accrued and Prepaid Revenues Trial Balance as at 31 August 2001 Particulars Debit Credit $ $ Rent 1 500 Commission 7 000 Adjustments $300 of the rent revenue was received in advance. The monthly commission was $700. The accounting period is from 1 July 2000 to 31 August 2001

  21. Practice - Accrued and Prepaid Revenues JOURNAL Particulars Debit Credit $ $ Rent Revenue 300 Prepaid Rent Revenue 300 (Being amount of revenue received in advance) 1 Accrued Commission Revenue 1 400 Commission Revenue 1 400 (Being revenue earned but not yet received) 2

  22. 1 Prepaid Rent Revenue Rent Revenue $ $ Prepaid Rent Rev 300 Cash at Bank 1 500 Profit & Loss 1 200 Prepaid Rent Revenue $ $ Bal c/d 300 Rent Revenue 300 Profit & Loss for the year ended 31 Aug 2001 $ $ Rent Revenue 1 200 Balance Sheet as at 31 Aug 2001 $ Current Liability Prepaid Rent Rev 300 $

  23. 2 Accrued Commission Revenue Commission Revenue $ $ Profit & Loss 8 400 Cash at Bank 7 000 Accrued Comm Rev 1 400 Accrued Commission Revenue $ $ Rent Revenue 1 400 Bal c/d 1 400 Profit & Loss for the year ended 31 Aug 2001 $ $ Rent Revenue 8 400 Balance Sheet as at 31 Aug 2001 $ Current Asset Accrued Comm Rev 1 400 $

  24. Credit Entry Debit Entry Debit Entry Credit Entry Conclusion 1.Definition Amount incurred for the accounting period but not yet paid for. Accrued Expenses Amount not yet incurred for the accounting period buy have been paid for. Prepaid Expenses Amount earned for the accounting period but not yet received as cash payment. Accrued Revenues Amount not earned for the accounting period but have been paid for. Prepaid Revenues

  25. Conclusion 2.Adjustments Dr Expense A/C Cr Accrued Expense A/C Accrued Expenses Dr Prepaid Expense A/C Cr Expense A/C Prepaid Expenses Dr Accrued Revenue A/C Cr RevenueA/C Accrued Revenues Dr Revenue A/C Cr Prepaid Revenue A/C Prepaid Revenues

  26. Conclusion 3.Balance Sheet Current Liability Accrued Expenses Current Assets Prepaid Expenses Current Assets Accrued Revenues Current Liability Prepaid Revenues

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