From the course: Advanced Bookkeeping Techniques
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Recording the receipt of and earning of unearned revenue
From the course: Advanced Bookkeeping Techniques
Recording the receipt of and earning of unearned revenue
- Another type of adjusting entry records the gradual earning of a payment received in advance from a customer. To illustrate, suppose that on April 1st of year one, a commercial property landlord receives $7,200 in cash as a one-year rental payment in advance from one of its commercial renters. On April 1st, a regular journal entry is made recording the receipt of cash. Now first, does this transaction involve any cash? Yes. Cash increases by $7,200. We know that asset increases are recorded with debits, so here is the start of our journal entry. Second, are there any other assets involved? No. How about any liability? Yes, the landlord now has an obligation to provide rental services for the next 12 months. We call this obligation unearned rent revenue, which is reported on the balance sheet as a liability. The amount of the liability unearned rent revenue goes up. Liability increases are recorded with credits. So here…
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