In: Accounting
On November 1, 2018, Gabriel received $8,400 for services to be rendered over the next 6 months and recorded it as Deferred Revenue. Record the adjusting entry at Dec. 31, 2018.
Hey there !!
Here we have to record accounting entry for Deferred Revenue.
First of all, Deferred revenue is an amount that is received by an entity in advance even before the services are provided. Therefore, the same is in nature of liability as at the date of financial statements.
When the deferred revenue becomes earned, an adjusting entry is prepared that will debit the Unearned Revenues or Deferred Revenues account and will credit Sales Revenues or Service Revenues.
Now let us pass the accounting entry for the same:
Date | Accounts and Explanation | Debit ($) | Credit ($) | |
1st Nov 18 | Bank A/c | Dr | 8400 | |
Deferred Revenue A/c | Cr | 8400 | ||
(Being deferred revenue recorded) | ||||
30th Nov 18 | Deferred Revenue A/c | Dr | 1,400 | |
Sales Revenue A/c | Cr | 1,400 | ||
(being revenue recognised at month end) | ||||
(8400/6 = 1400 p.m) | ||||
31st Dec 18 | Deferred Revenue A/c | Dr | 1,400 | |
Sales Revenue A/c | Cr | 1,400 | ||
(being revenue recognised at month end) | ||||
I hope the solution is clear to you now...do let me know in case of any concerns...
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