Accrued revenue
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- เผยแพร่เมื่อ 9 มิ.ย. 2024
- Accrued revenue. Revenue earned for goods or services delivered but not billed to the customer yet. This is sometimes called unbilled revenue.
Let me tell you a little secret. The finance and accounting team does not really like accrued revenue. But if we have to record accrued revenue as an adjusting entry, in order to state the books correctly, we will!
In some companies, there is no need to record accrued revenue. In other companies, due to their operational process, their billing process, or the way their systems are set up, accrued revenue journal entries are needed at the end of the accounting period. It’s a matter of principle, more specifically the matching principle. Expenses should be recorded during the period in which they are incurred. Revenues should be recorded during the period in which they are earned.
⏱️TIMESTAMPS⏱️
0:00 Accrued revenue definition
0:26 When does accrued revenue occur
3:11 Matching principle and adjusting entries
3:37 Journal entries for accrued revenue
4:58 How to avoid the need for accrued revenue
Here are the journal entries for accrued revenue. Step one is the adjusting entry at period-end. Debit accrued revenue on the balance sheet, credit revenue in the income statement. Make sure that when you make a revenue accrual, you also post the related journal entry of cost of sales! Debit cost of goods sold in the income statement, credit inventory on the balance sheet. This way, the margin that is made on the sales is stated correctly!
Step two is to issue the invoice in the new accounting period. Debit accounts receivable on the balance sheet, credit accrued revenue on the balance sheet. This brings the balance of the accrued revenue account on the balance sheet back to zero, it is cleared out. If you record to accounts receivable on the balance sheet, you need an invoice number and other critical information. Accrued revenue is an account used on a more summarized and less detailed level.
Step three is for the customer to pay the invoice. Debit cash, credit accounts receivable. At the end of the billing and collections cycle, we have 100 of revenue in the income statement, 100 of cash in the bank, and 50 in cost of goods sold, but it took us an extra journal entry, through the accrued revenue account on the balance sheet, to get there.
This video on accrued revenue is part of a series on #adjustingentries that also includes videos on accruals, prepayments, and deferrals: • Accruals explained
Philip de Vroe (The Finance Storyteller) aims to make #accounting , finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: TH-cam videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!
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Enjoyed this video? Then subscribe to the channel right now, and then watch the related videos in the "adjusting entries" playlist: th-cam.com/video/lBvnSgIGVnU/w-d-xo.html You will learn about deferred revenue, accrued expenses, and prepaid expenses!
In-depth and more knowledgeable than the academic example.
Thank you, Jagadeesh! :-) Yes, I try to approach these topics from the real life perspective.
Explained very clearly. I Learned a lot and clarified many confusing cases. Thanks a lot!
So happy to hear that! Thank you for watching and commenting. Please subscribe to the channel!
Was just adding accrued revenue to a ledger and got this notification.
Really good timing
Isn't synchronicity a beautiful thing! :-)
@@TheFinanceStoryteller
it sure is!
Best discovery in 2020. You are helping a lot of students :) thanks a lot
Great to hear that, Antonio! Thanks for your support. Please spread the word!!! By the way, I have a video on deferred revenue as well: th-cam.com/video/SNguYyKrqL4/w-d-xo.html
May I ask if there is a vid abt bank reconciliation statement thankq. I couldn't find... 🙏 (Sorry it's not related)
Hi Zara! Good question, but no, I have not done a video on that topic. I believe there are other TH-camrs that did make videos on that topic, so I hope you find what you need there!
@@TheFinanceStoryteller Sure. Thanks a lot!
Please help me in these two questions
Qst:1
Invoice Issued in Aug-20 50000USD
Service provided in Sep-20 30000USD
How much revenue will be recognised in Aug-20 and Sep-20 and how much will be the working capital in Aug-20 and Sep-20
Second Qst :
Invoice Issued in Aug-20 50000USD
Service provided in Aug-20 30000USD
How much revenue and Working capital would be recognised in Aug-20
Kindly help me in it
Hello Gagan. I don't solve other people's homework problems, but I can point you in the right direction. The main two areas you need to study to solve this problem are: revenue recognition (revenue is recognized in the period when goods are delivered or the service is performed, not when the invoice is sent) th-cam.com/video/816Q6pOaGv4/w-d-xo.html and deferred revenue (a balance sheet account (liability) representing the obligation to deliver goods or perform services in the future for which billing has already occurred and/or cash has been received) th-cam.com/video/SNguYyKrqL4/w-d-xo.html
@@TheFinanceStoryteller hello sir my query arrised after watching your both videos yesterday...
I think you have shared your video for public domain and if someone have query on it then you can help in it
Both qst created by me on the basis of videos only
If some one have issued invoice only and no cash received then also we do Defered revenue JE and Second part I know we recognise the revenue as per IFRS15 or Ind AS 115
But maine issue was only on issue of invoice we will post a deferred revenue JE
Then someone can raise multiple invoices at year end to increase their assets.. though liabilities will also increase with same proportion
Question 1. At the end of August, $50K needs to be in Accounts Receivable (asset, debit), and the same amount in Deferred Revenue (credit, liability). Then once the service is provided in September and subsequent periods, debit Deferred Revenue on the balance sheet and credit Revenue in the income statement.
Question 2. August ending balances: Accounts Receivable $50K, Deferred Revenue $20K, Revenue $30K.
@@TheFinanceStoryteller Thank you sir