SOME HELP FOR CLOSING YOUR BOOKS FOR 2008

Here's some help for closing your 2008 books this month.

In Problem 1 below, the cash received in advance was initially recorded as unearned revenue; in Problem 2, as revenue.

PROBLEM 1: Renovation, Inc. signs a $50,000 painting contract with CriCo and receives a $20,000 advance. When Renovation’s year ends, it has completed 10% of the job. What entry is recorded upon re¬ceipt of the cash? What adjusting entry is made at year end?

SOLUTION 1: The original entry records the receipt of cash:
Cash 20,000
Unearned Painting Revenue* 20,000
To record cash advance on CriCo job

* This account may also have other names such as Painting Revenue Collected In Advance, or Painting Revenue Received In Advance.

Before you can record the adjusting entry at year end, you must compute the amount earned as of yearend. According to the data, this is a $50,000 job of which Renovation has completed 10%. To compute: $50,000 job x 10% completed = $5,000 earned.

Thus, the year-end adjusting entry is as follows:

Unearned Painting Revenue 5,000
Painting Revenue 5,000
To record revenue earned

The debit to Unearned Painting Revenue reduces liabilities by the amount earned, leaving a balance of $15,000 (the amount of revenue not yet earned). The credit to Painting Revenue recognizes $5,000 as income.

PROBLEM 2: Same facts as Problem 1, but this time the cash advance is credited to Revenue in the initial entry. What entry is recorded upon receipt of the cash? What adjusting entry is recorded at year end?

SOLUTION 2: The original entry is:
Cash 20,000
Painting Revenue 20,000
To record cash advance on CriCo job

Before you can record the adjusting entry, you need to com¬pute the amount earned as of yearend. According to the data, it is a $50,000 job, of which Renovation has completed 10%. To compute: $50,000 job x 10% completed = $5,000 earned.

Thus, the year-end adjusting entry is as follows:

Painting Revenue 15,000
Unearned Painting Revenue 15,000
To record revenue earned

The debit reduces the balance in Painting Revenue to the amount earned, $5,000, and creates a new account, Unearned Painting Revenue, with a balance of $15,000 (the amount of revenue yet to be earned).
How to compute and record the adjusting entry
for payment received in advance

Here's some help for closing your 2008 books this month. This is just one small example of the practical how-to you get as a member in our monthly technical newsletter, The General Ledger.

In Problem 1 below, the cash received in advance was initially recorded as unearned revenue; in Problem 2, as revenue.

PROBLEM 1: Renovation, Inc. signs a $50,000 painting contract with CriCo and receives a $20,000 advance. When Renovation’s year ends, it has completed 10% of the job. What entry is recorded upon re¬ceipt of the cash? What adjusting entry is made at year end?

SOLUTION 1: The original entry records the receipt of cash:
Cash 20,000
Unearned Painting Revenue* 20,000
To record cash advance on CriCo job

* This account may also have other names such as Painting Revenue Collected In Advance, or Painting Revenue Received In Advance.

Before you can record the adjusting entry at year end, you must compute the amount earned as of yearend. According to the data, this is a $50,000 job of which Renovation has completed 10%. To compute: $50,000 job x 10% completed = $5,000 earned.

Thus, the year-end adjusting entry is as follows:

Unearned Painting Revenue 5,000
Painting Revenue 5,000
To record revenue earned

The debit to Unearned Painting Revenue reduces liabilities by the amount earned, leaving a balance of $15,000 (the amount of revenue not yet earned). The credit to Painting Revenue recognizes $5,000 as income.

PROBLEM 2: Same facts as Problem 1, but this time the cash advance is credited to Revenue in the initial entry. What entry is recorded upon receipt of the cash? What adjusting entry is recorded at year end?

SOLUTION 2: The original entry is:
Cash 20,000
Painting Revenue 20,000
To record cash advance on CriCo job

Before you can record the adjusting entry, you need to com¬pute the amount earned as of yearend. According to the data, it is a $50,000 job, of which Renovation has completed 10%. To compute: $50,000 job x 10% completed = $5,000 earned.

Thus, the year-end adjusting entry is as follows:

Painting Revenue 15,000
Unearned Painting Revenue 15,000
To record revenue earned

The debit reduces the balance in Painting Revenue to the amount earned, $5,000, and creates a new account, Unearned Painting Revenue, with a balance of $15,000 (the amount of revenue yet to be earned).
How to compute and record the adjusting entry
for payment received in advance

Here's some help for closing your 2008 books this month. This is just one small example of the practical how-to you get as a member in our monthly technical newsletter, The General Ledger.

In Problem 1 below, the cash received in advance was initially recorded as unearned revenue; in Problem 2, as revenue.

PROBLEM 1: Renovation, Inc. signs a $50,000 painting contract with CriCo and receives a $20,000 advance. When Renovation’s year ends, it has completed 10% of the job. What entry is recorded upon re¬ceipt of the cash? What adjusting entry is made at year end?

SOLUTION 1: The original entry records the receipt of cash:
Cash 20,000
Unearned Painting Revenue* 20,000
To record cash advance on CriCo job

* This account may also have other names such as Painting Revenue Collected In Advance, or Painting Revenue Received In Advance.

Before you can record the adjusting entry at year end, you must compute the amount earned as of yearend. According to the data, this is a $50,000 job of which Renovation has completed 10%. To compute: $50,000 job x 10% completed = $5,000 earned.

Thus, the year-end adjusting entry is as follows:

Unearned Painting Revenue 5,000
Painting Revenue 5,000
To record revenue earned

The debit to Unearned Painting Revenue reduces liabilities by the amount earned, leaving a balance of $15,000 (the amount of revenue not yet earned). The credit to Painting Revenue recognizes $5,000 as income.

PROBLEM 2: Same facts as Problem 1, but this time the cash advance is credited to Revenue in the initial entry. What entry is recorded upon receipt of the cash? What adjusting entry is recorded at year end?

SOLUTION 2: The original entry is:
Cash 20,000
Painting Revenue 20,000
To record cash advance on CriCo job

Before you can record the adjusting entry, you need to com¬pute the amount earned as of yearend. According to the data, it is a $50,000 job, of which Renovation has completed 10%. To compute: $50,000 job x 10% completed = $5,000 earned.

Thus, the year-end adjusting entry is as follows:

Painting Revenue 15,000
Unearned Painting Revenue 15,000
To record revenue earned

The debit reduces the balance in Painting Revenue to the amount earned, $5,000, and creates a new account, Unearned Painting Revenue, with a balance of $15,000 (the amount of revenue yet to be earned).

Information provided by: AIPB-General Ledger-VOLUME 5: Issue 1
Tags: accountanting, bookkeeping, business