How should unearned income be shown on a balance sheet and income statement?
September 29, 2008
Johnny asked:
Suppose that during a given year, I receive payments of $50,000. During this year, $30,000 of these payments have not yet been earned. Should the $50k go as revenue on my income statement? Should the $30k go as a liability on my balance sheet? How should I represent all of this in the liability section of my balance sheet?
Thanks in advance.
Suppose that during a given year, I receive payments of $50,000. During this year, $30,000 of these payments have not yet been earned. Should the $50k go as revenue on my income statement? Should the $30k go as a liability on my balance sheet? How should I represent all of this in the liability section of my balance sheet?
Thanks in advance.
September 30th, 2008 at 4:03 pm
When you received the money, you
Dr Cash $50k
Cr Unearned revenue $50k
At year-end, pass this adjusting entry:
Dr Unearned revenue $20k
Cr Revenue $20k
This will leave your unearned revenue acct with a $30k balance. This goes under current liablilities in the balance sheet. Your income statement shows revenue of $20k