{"id":3083,"date":"2020-10-08T21:58:15","date_gmt":"2020-10-08T21:58:15","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&#038;p=3083"},"modified":"2022-09-22T16:49:22","modified_gmt":"2022-09-22T16:49:22","slug":"adjusting-deferred-and-accrued-revenue","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/adjusting-deferred-and-accrued-revenue\/","title":{"raw":"Adjusting Deferred and Accrued Revenue","rendered":"Adjusting Deferred and Accrued Revenue"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Analyzing revenue accounts and creating necessary adjustments<\/li>\r\n<\/ul>\r\n<\/div>\r\n<h2>Accrued Revenue<\/h2>\r\nAn asset\/revenue adjustment may occur when a company performs a service for a customer but has not yet billed the customer. The accountant records this transaction as an asset in the form of a receivable and as revenue because the company has earned a revenue.\r\n\r\nFor instance, MacroAuto does work for a customer, Bill\u2019s Big Trucks, in December for $5,000. When we are analyzing the trial balance accounts, we find that the customer has not been billed, so the earned revenue is not showing up in Service Revenue or in Accounts Receivable. We would make the following adjusting entry on December 31:\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\r\n<thead>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Post. Ref.<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>20--<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Dec. 31<\/th>\r\n<td>Accounts Receivable<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">5,000.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Dec. 31<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Service Revenue<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">5,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Dec. 31<\/span><\/th>\r\n<td>To accrue revenue earned but not yet billed.<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWe recorded an increase in revenue and an increase in money owed to us so that our ledgers, thus our trial balance, and therefore our financial statements, will be in compliance with GAAP, which requires accrual basis accounting.\r\n<div class=\"textbox key-takeaways\">\r\n<h3>Important Things to note<\/h3>\r\n<ol>\r\n \t<li style=\"font-weight: 400;\">This is a prototypical accrued revenue entry. If this was rent due to the company, then the account names would change to Rent Receivable and Rent Revenue. If it was interest on a note receivable, we would post the entries to Interest Receivable and Interest Revenue. It\u2019s that simple.<\/li>\r\n \t<li style=\"font-weight: 400;\">We have to also post this entry to the customer\u2019s account in the subsidiary ledger so it stays in balance with the general ledger. If this was our only entry to accounts receivable ever, then the general ledger would show $5,000 in receivables, and the subsidiary ledger would show $5,000 owing from Bill\u2019s Big Trucks. In a real company, the list of customers would be long and each would owe some different amount, obviously; but if the total in the subsidiary ledger was $435,692.89, then the total in the general ledger had better be\u00a0 $435,692.89.\u00a0<em>Your accounts always need to be in balance.<\/em><\/li>\r\n<\/ol>\r\n<\/div>\r\nIf your computerized system updates revenue and receivables when a bill is issued, you might have to actually issue a back-dated bill in order to accrue this revenue (which means you would not have an adjusting journal entry because the ledger would be updated in the normal process) or you would have to post the receivable portion of the entry to a separate receivable account. You would need to post the amount separately because your system will probably not let you post directly to the subsidiary ledger or to the general ledger so that you don\u2019t accidentally get them out of balance with each other.\r\n\r\nEven so, theoretically, this example is a good example of an accrued revenue.\r\n\r\nhttps:\/\/www.youtube.com\/watch?v=kpxLOHK9Ous\r\n<h2>Deferred Revenue<\/h2>\r\nNow let\u2019s look at deferred revenue.\r\n\r\nAgain, with a computerized system, you have to figure out how to enter these quasi-transactions in a way that keeps everything lined up. Since we\u2019re exploring the theory here, let\u2019s say instead of doing work for Bill\u2019s Big Trucks and billing him later, MacroAutos was so busy it was asking for full payment in advance, a retainer, so to speak, in order to put the job in the queue. So, Bill\u2019s Big Trucks pays $6,700 in advance in November for work that will be done over the course of several months.\r\n\r\nHere\u2019s the original entry back in November to record the receipt of cash:\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 86<\/span><\/caption>\r\n<thead>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Post. Ref.<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>20--<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Nov. 15<\/th>\r\n<td>Checking Account<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">6,700.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Nov. 15<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Unearned Revenue<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">6,700.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Nov. 15<\/span><\/th>\r\n<td>To record cash deposit from Bill's Big Trucks<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNow, at the end of the year (actually, it\u2019s probably mid-January by the time you are going through the trial balance as of December 31) you see that Unearned Revenue (or Customer Deposits, or Retainage, or whatever your company calls it) has a balance of $6,700 (assuming this was the only entry). Wondering if that balance is correct, you look at the ledger, trace the entry back to the journal, and then to find the agreement with Bill\u2019s Big Trucks. You ask the operations manager if anything has been done on this contract, and she says, \u201cYes, it\u2019s 40 percent done.\u201d Under accrual basis accounting, you determine you should recognize the entry as \u201cearned\u201d 40 percent of the revenue recorded as a deposit back in November.\r\n\r\nAt lunch, harkening back to your accounting class, you draw a couple of T accounts on a napkin and do the math:\r\n<p style=\"padding-left: 30px;\">6700 \u00d7 .40 = 2680 revenue earned so far<\/p>\r\n<p style=\"padding-left: 30px;\">and<\/p>\r\n<p style=\"padding-left: 30px;\">6700 \u00d7 .60 = 4020 still unearned.<\/p>\r\nYou scratch out what you think the journal entry would look like (you also draw in the original transaction for reference and accuracy sake):\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/13131429\/Adjusting-Deferred-and-Accrued-Revenue1.png\"><img class=\"alignnone size-full wp-image-5672\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/13131429\/Adjusting-Deferred-and-Accrued-Revenue1.png\" alt=\"Two T accounts side by side. On the left is the checking account. It has a debit entry for 6,700 dollars on 11\/15. On the right side is the unearned revenue chart. On the debit side, there is an adjusting journal entry of 2,680 dollars. On the credit side, there is an entry for 6,700 dollars on 11\/15. There is a credit total of 4,020 dollars.\" width=\"858\" height=\"337\" \/><\/a>\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/01010420\/Screen-Shot-2020-10-31-at-5.57.19-PM.png\"><img class=\" wp-image-4815 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/01010420\/Screen-Shot-2020-10-31-at-5.57.19-PM-288x300.png\" alt=\"T account for Service Revenue. There is one adjusting journal entry for 2,680 dollars on the credit side.\" width=\"260\" height=\"271\" \/><\/a>\r\n\r\nThen you write the journal entry.\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\r\n<thead>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Post. Ref.<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>20--<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Dec. 31<\/th>\r\n<td>Unearned Revenue<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">2,680.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Dec. 31<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Service Revenue<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">2,680.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Dec. 31<\/span><\/th>\r\n<td>To accrue revenue earned but not yet billed.<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nAfter posting this journal entry and running your adjusted trial balance, you\u2019ll double-check the ending balance in unearned revenue against your napkin prediction. Also, you\u2019ll make a much nicer \u201cworking paper\u201d (which will be filed digitally) for your files explaining the entry and verifying the ending balance in the account. This process is done so that when auditors come in they can duplicate your work without having to pull a spaghetti-stained napkin out of the filing cabinet.\r\n\r\nhttps:\/\/www.youtube.com\/watch?v=a7ZDtDiQ6kI\r\n\r\nAnd there you go, entries for both accrued and deferred revenues. Remember that <em>accrued<\/em> means to \u201cadd to,\u201d so we have earned it but haven\u2019t recorded it yet; <em>deferred<\/em> means we have collected the cash, but we haven\u2019t earned it yet.\r\n\r\nNow it\u2019s your turn to try what you have learned.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/23382\r\n\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/23383\r\n\r\n[ohm_question hide_question_numbers=1]202375[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Analyzing revenue accounts and creating necessary adjustments<\/li>\n<\/ul>\n<\/div>\n<h2>Accrued Revenue<\/h2>\n<p>An asset\/revenue adjustment may occur when a company performs a service for a customer but has not yet billed the customer. The accountant records this transaction as an asset in the form of a receivable and as revenue because the company has earned a revenue.<\/p>\n<p>For instance, MacroAuto does work for a customer, Bill\u2019s Big Trucks, in December for $5,000. When we are analyzing the trial balance accounts, we find that the customer has not been billed, so the earned revenue is not showing up in Service Revenue or in Accounts Receivable. We would make the following adjusting entry on December 31:<\/p>\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\n<thead>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Post. Ref.<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>20&#8211;<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Dec. 31<\/th>\n<td>Accounts Receivable<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">5,000.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Dec. 31<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Service Revenue<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">5,000.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Dec. 31<\/span><\/th>\n<td>To accrue revenue earned but not yet billed.<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>We recorded an increase in revenue and an increase in money owed to us so that our ledgers, thus our trial balance, and therefore our financial statements, will be in compliance with GAAP, which requires accrual basis accounting.<\/p>\n<div class=\"textbox key-takeaways\">\n<h3>Important Things to note<\/h3>\n<ol>\n<li style=\"font-weight: 400;\">This is a prototypical accrued revenue entry. If this was rent due to the company, then the account names would change to Rent Receivable and Rent Revenue. If it was interest on a note receivable, we would post the entries to Interest Receivable and Interest Revenue. It\u2019s that simple.<\/li>\n<li style=\"font-weight: 400;\">We have to also post this entry to the customer\u2019s account in the subsidiary ledger so it stays in balance with the general ledger. If this was our only entry to accounts receivable ever, then the general ledger would show $5,000 in receivables, and the subsidiary ledger would show $5,000 owing from Bill\u2019s Big Trucks. In a real company, the list of customers would be long and each would owe some different amount, obviously; but if the total in the subsidiary ledger was $435,692.89, then the total in the general ledger had better be\u00a0 $435,692.89.\u00a0<em>Your accounts always need to be in balance.<\/em><\/li>\n<\/ol>\n<\/div>\n<p>If your computerized system updates revenue and receivables when a bill is issued, you might have to actually issue a back-dated bill in order to accrue this revenue (which means you would not have an adjusting journal entry because the ledger would be updated in the normal process) or you would have to post the receivable portion of the entry to a separate receivable account. You would need to post the amount separately because your system will probably not let you post directly to the subsidiary ledger or to the general ledger so that you don\u2019t accidentally get them out of balance with each other.<\/p>\n<p>Even so, theoretically, this example is a good example of an accrued revenue.<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"Adjusting Entry Example: Accrued Revenue\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/kpxLOHK9Ous?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<h2>Deferred Revenue<\/h2>\n<p>Now let\u2019s look at deferred revenue.<\/p>\n<p>Again, with a computerized system, you have to figure out how to enter these quasi-transactions in a way that keeps everything lined up. Since we\u2019re exploring the theory here, let\u2019s say instead of doing work for Bill\u2019s Big Trucks and billing him later, MacroAutos was so busy it was asking for full payment in advance, a retainer, so to speak, in order to put the job in the queue. So, Bill\u2019s Big Trucks pays $6,700 in advance in November for work that will be done over the course of several months.<\/p>\n<p>Here\u2019s the original entry back in November to record the receipt of cash:<\/p>\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 86<\/span><\/caption>\n<thead>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Post. Ref.<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>20&#8211;<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Nov. 15<\/th>\n<td>Checking Account<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">6,700.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Nov. 15<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Unearned Revenue<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">6,700.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Nov. 15<\/span><\/th>\n<td>To record cash deposit from Bill&#8217;s Big Trucks<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Now, at the end of the year (actually, it\u2019s probably mid-January by the time you are going through the trial balance as of December 31) you see that Unearned Revenue (or Customer Deposits, or Retainage, or whatever your company calls it) has a balance of $6,700 (assuming this was the only entry). Wondering if that balance is correct, you look at the ledger, trace the entry back to the journal, and then to find the agreement with Bill\u2019s Big Trucks. You ask the operations manager if anything has been done on this contract, and she says, \u201cYes, it\u2019s 40 percent done.\u201d Under accrual basis accounting, you determine you should recognize the entry as \u201cearned\u201d 40 percent of the revenue recorded as a deposit back in November.<\/p>\n<p>At lunch, harkening back to your accounting class, you draw a couple of T accounts on a napkin and do the math:<\/p>\n<p style=\"padding-left: 30px;\">6700 \u00d7 .40 = 2680 revenue earned so far<\/p>\n<p style=\"padding-left: 30px;\">and<\/p>\n<p style=\"padding-left: 30px;\">6700 \u00d7 .60 = 4020 still unearned.<\/p>\n<p>You scratch out what you think the journal entry would look like (you also draw in the original transaction for reference and accuracy sake):<\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/13131429\/Adjusting-Deferred-and-Accrued-Revenue1.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-5672\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/13131429\/Adjusting-Deferred-and-Accrued-Revenue1.png\" alt=\"Two T accounts side by side. On the left is the checking account. It has a debit entry for 6,700 dollars on 11\/15. On the right side is the unearned revenue chart. On the debit side, there is an adjusting journal entry of 2,680 dollars. On the credit side, there is an entry for 6,700 dollars on 11\/15. There is a credit total of 4,020 dollars.\" width=\"858\" height=\"337\" \/><\/a><\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/01010420\/Screen-Shot-2020-10-31-at-5.57.19-PM.png\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-4815 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/01010420\/Screen-Shot-2020-10-31-at-5.57.19-PM-288x300.png\" alt=\"T account for Service Revenue. There is one adjusting journal entry for 2,680 dollars on the credit side.\" width=\"260\" height=\"271\" \/><\/a><\/p>\n<p>Then you write the journal entry.<\/p>\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\n<thead>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Post. Ref.<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>20&#8211;<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Dec. 31<\/th>\n<td>Unearned Revenue<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">2,680.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Dec. 31<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Service Revenue<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">2,680.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Dec. 31<\/span><\/th>\n<td>To accrue revenue earned but not yet billed.<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>After posting this journal entry and running your adjusted trial balance, you\u2019ll double-check the ending balance in unearned revenue against your napkin prediction. Also, you\u2019ll make a much nicer \u201cworking paper\u201d (which will be filed digitally) for your files explaining the entry and verifying the ending balance in the account. This process is done so that when auditors come in they can duplicate your work without having to pull a spaghetti-stained napkin out of the filing cabinet.<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-2\" title=\"Adjusting Entry Example: Unearned Revenue\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/a7ZDtDiQ6kI?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>And there you go, entries for both accrued and deferred revenues. Remember that <em>accrued<\/em> means to \u201cadd to,\u201d so we have earned it but haven\u2019t recorded it yet; <em>deferred<\/em> means we have collected the cash, but we haven\u2019t earned it yet.<\/p>\n<p>Now it\u2019s your turn to try what you have learned.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p>\t<iframe id=\"lumen_assessment_23382\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=23382&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_23382\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<p>\t<iframe id=\"lumen_assessment_23383\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=23383&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_23383\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<p><iframe loading=\"lazy\" id=\"ohm202375\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=202375&theme=oea&iframe_resize_id=ohm202375\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-3083\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Adjusting Deferred and Accrued Revenue. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. Hermanson, Georgia State University. <strong>Provided by<\/strong>: Endeavour International Corporation. <strong>Project<\/strong>: The Global Text Project. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Adjusting Entries for Accrued Revenues. <strong>Authored by<\/strong>: Note Pirate. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/Fn3oUGTf-wk\">https:\/\/youtu.be\/Fn3oUGTf-wk<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><li>Adjusting Entries for Unearned Revenue. <strong>Authored by<\/strong>:  Note Pirate. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/XsHSN3UgCHM\">https:\/\/youtu.be\/XsHSN3UgCHM<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":17,"menu_order":6,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Adjusting Deferred and Accrued Revenue\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. 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