Q17. Accrued revenue
On December 15, 20×1, Entity A entered into a service contract with a customer. The service was provided on December 29, 20×1 and an $8,900 invoice was sent to the customer. The customer paid $8,900 on January 15, 20×2.
Prepare journal entries to record these transactions.
A17. Under the accrual basis accounting, revenue is recognized as it is earned even if cash is received later.
(1) December 29, 20×1: to recognize revenue
| Debit | Credit | |
| Accounts receivable | 8,900 | |
| Service revenue | 8,900 |
[Note]
1. Increase in accounts receivable (asset): debit
2. Increase in service revenue (revenue): credit
(2) January 15, 20×2: to record the receipt of cash
| Debit | Credit | |
| Cash | 8,900 | |
| Accounts receivable | 8,900 |
[Note]
1. Increase in cash (asset): debit
2. Decrease in accounts receivable (asset): credit
[Exercise]
On December 20, 20×1, Entity B received a purchase order of 800 units of merchandise at the price of $9 per unit. The merchandise was delivered on December 27, 20×1 and a $7,200 invoice was sent to the customer. The customer paid $7,200 on January 20, 20×2. Prepare journal entries to record these transactions.
(1) December 27, 20×1: to recognize revenue
| Debit | Credit | |
| Accounts receivable | 7,200 | |
| Sales revenue | 7,200 |
[Note]
1. Increase in accounts receivable (asset): debit
2. Increase in sales revenue (revenue): credit
3. Sales revenue = 800 units x $9 = $7,200
(2) January 20, 20×2: to record the receipt of cash
| Debit | Credit | |
| Cash | 7,200 | |
| Accounts receivable | 7,200 |
[Note]
1. Increase in cash (asset): debit
2. Decrease in accounts receivable (asset): credit