Accrued Revenue

1
Balance Day Adjustments
Accrued Revenue
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Your father is very angry! Due to Economic
crisis, the company your father is working for is
unable to pay him salary for this month.
However, his salary will be delayed till next
month.
3

• Assume that your father is earning a monthly
  salary of 5 000. The company will pay in total
  of 10 000 to your father next month (5 000 x
  2), being one month of salary owing to your
  father. This owing salary is known as ACCRUED
  Salary. This applies same to firms whereby
  revenues owing to them is known as Accrued
  Revenues.

Definition Are revenues earned for the current
accounting period but not yet received as cash
payment.
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Accrued Revenue/Outstanding Revenue

• Mr Tan sub-lets a building for Phua CK for a
  monthly rental of 1 000. Due to Phuas
  negligence, Mr Tan does not receive 12 000 for
  period from January to December 2000. Instead Mr
  Tan only receives 5 000 from Phua.

Scenario 1
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Accrued Revenue/Outstanding Revenue
End of accounting period December 2000

• Should have received 12 000
• Only received 5 000
• Outstanding revenue 7 000

This owing amount of 7 000 is also known as
Accrued Rent Revenue. Mr. Tan still owes PCK Ltd
7 000 that was not paid for the year of 2000.
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Accrued Revenue/Outstanding Revenue
31 Dec 2000
1 Jan 2000
31 May 2000
5 000 received
7 000 owing
12 000 earned
JOURNAL
Date Particulars
Debit Credit Year 2000 7
000 Dec 31
7 000
Accrued Rent Revenue
Rent Revenue
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Accrued Revenue/Outstanding Revenue
RENT REVENUE a/c
Year 2000 Dec 31 Bank
5 000
Year 2000 Dec 31 Profit Loss
12 000
Accrued rent 7 000

Revenue
12 000
12 000
PROFIT AND LOSS a/c
Year 2000 Dec 31 Rent
12 000 Revenue
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Accrued Revenue/Outstanding Revenue
ACCRUED RENT REVENUE a/c
Year 2000 Dec 31
Year 2000 Dec 31 Bal c/d
7 000
Rent Revenue 7 000
7 000
7 000
Year 2001 Jan 1 Bal b/d
7 000
BALANCE SHEET AS AT 31 DEC 2000
Current Asset
Accrued Revenue 7 000
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Balance Day Adjustments - Accrued Revenue

• Definition
• Nature of the entry - Debit or Credit entry?
• Distinguish the differences in adjustments
  between the Accrued Expenses and Accrued Revenues

Summary
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Balance Day Adjustments
Prepaid Revenue
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Balance Day Adjustments

• You have found a part-time job in MacDonald for
  three months. Your monthly salary is 500. By
  the end of the first month, you should have
  received 500 of what you have earned. However,
  the manager is such a nice person that he gives
  you 1 000. (Two months salary). He
  understands that you need money to enjoy your
  school holidays.

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Balance Day Adjustments
Received 500 x 2 (Two months
salary) 1 000 Earned 500 Paid
in advance 500
This prepaid of salary (revenue) is known as
Prepaid Revenue / Outstanding Revenue. 500 is
the prepaid Revenue.
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Prepaid Revenue/ Outstanding Revenue
DEFINITION
Are revenues received in advance for which the
services not yet rendered/earned in the
particular accounting year.

• Hence the received cash for such revenues is not
  considered as revenues for the current accounting
  year.

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Prepaid Revenue/ Outstanding Revenue

• Recall that Mr Phua CK decided to pay in advance
  his rents to save face. Hence Mr Tan received
  18 000, in which 12 000 is the revenue earned
  for the accounting year of 2001 and 6 000 is
  prepaid revenue.

Scenario 2
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Prepaid Revenue/ Outstanding Revenue
31 June 2002
1 Jan 2001
31 Dec 2001
12 000 earned
6 000 in advance
18 000 received
JOURNAL
Date Particulars
Debit Credit Year 2001 6
000 Dec 31 6 000
Prepaid Rent Expense
Rent Expense
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Prepaid Revenue/ Outstanding Revenue
RENT REVENUE a/c
Year 2001 Dec 31 Bank
18 000
Year 2001 Dec 31 Profit Loss
12 000
Prepaid rent 6 000 Revenue
18 000
18 000
PROFIT AND LOSS a/c
Year 2001 Dec 31 Rent
12 000 Revenue
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Prepaid Revenue/ Outstanding Revenue
PREPAID RENT REVENUE a/c
Year 2001 Dec 31 Bal c/d
6 000
Year 2001 Dec 31
Rent Revenue 6 000
6 000
6 000
Year 2002 Jan 1 Bal b/d
6 000
BALANCE SHEET AS AT 31 DEC 2001
Current Liabilities
Prepaid Revenue 6 000
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Balance Day Adjustments - Prepaid Revenue

• Definition
• Nature of the entry
• Distinguish the differences in adjustments
  between accrued revenues and prepaid revenues

Summary
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Practice!
Accrued Prepaid Revenues
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Practice - Accrued and Prepaid Revenues
Trial Balance as at 31 August 2001
Particulars Debit Credit
Rent 1 500 Commission 7 000

• Adjustments
• 300 of the rent revenue was received in advance.
• The monthly commission was 700. The accounting
  period is from 1 July 2000 to 31 August 2001

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Practice - Accrued and Prepaid Revenues
JOURNAL
Particulars Debit
Credit
Rent Revenue 300 Prepaid Rent Revenue
300 (Being amount of revenue received in advance)
1
Accrued Commission Revenue 1 400 Commission
Revenue 1 400 (Being revenue
earned but not yet received)
2
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1
Prepaid Rent Revenue
Rent Revenue


Prepaid Rent Rev 300
Cash at Bank 1 500
Profit Loss 1 200
Prepaid Rent Revenue


Rent Revenue 300
Bal c/d 300
Profit Loss for the year ended 31 Aug 2001


Rent Revenue 1 200
Balance Sheet as at 31 Aug 2001

Current Liability Prepaid Rent
Rev 300

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2
Accrued Commission Revenue
Commission Revenue


Cash at Bank 7 000
Profit Loss 8 400
Accrued Comm Rev 1 400
Accrued Commission Revenue


Rent Revenue 1 400
Bal c/d 1 400
Profit Loss for the year ended 31 Aug 2001


Rent Revenue 8 400
Balance Sheet as at 31 Aug 2001

Current Asset Accrued Comm Rev 1
400

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Conclusion
1.Definition
Amount incurred for the accounting period but not
yet paid for.
Accrued Expenses
Amount not yet incurred for the accounting period
buy have been paid for.
Prepaid Expenses
Amount earned for the accounting period but not
yet received as cash payment.
Accrued Revenues
Amount not earned for the accounting period but
have been paid for.
Prepaid Revenues
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Conclusion
2.Adjustments
Dr Expense A/C Cr Accrued Expense A/C
Accrued Expenses
Dr Prepaid Expense A/C Cr Expense A/C
Prepaid Expenses
Dr Accrued Revenue A/C Cr Revenue A/C
Accrued Revenues
Dr Revenue A/C Cr Prepaid Revenue A/C
Prepaid Revenues
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Conclusion
3.Balance Sheet
Current Liability
Accrued Expenses
Current Assets
Prepaid Expenses
Current Assets
Accrued Revenues
Current Liability
Prepaid Revenues