Unearned Income Journal Entry

Under liability method the whole amount received in advance is initially recorded as liability by debiting cash and crediting unearned revenue or income.

Unearned income journal entry. The adjusting entry for unearned revenue depends upon the journal entry made when it was initially recorded. Journal entries of unearned revenue. For this transaction the accounting equation is shown in the following table. Journal entry for income received in advance recognizes the accounting rule of credit the increase in liability.

At that time the unearned revenue will be recognized as revenue on your income statement. Example 5 unearned rental income on january 1 a landlord receives 500 from a tenant as an advance for the month s rent. It is recorded by debiting unearned revenue account and crediting earned revenue account. These are liability method and income method.

The journal entries are. In the alternate a lump sum entry for 6 months july to december can also be passed to account for the subscription earned against the services provided belonging to the current year. Journal entry for income received in advance. 1 the liability method and 2 the income method.

31 unearned professional fee income 250 professional fee income 250. The journal entry. Unearned professional fee income 1 000. Unearned income or revenue is accounted for using one of the two methods.

The accounting equation assets liabilities owners equity means that the total assets of the business are always equal to the total liabilities plus the total equity of the business. We shall discuss both on this page. The journal entry to record a prepayment would be. Also known as unearned income it is income which is received in advance however the related benefits are yet to be provided it belongs to a future accounting period and is still to be earned.

Accounting equation for unearned revenue journal entry. In other words the unearned income of 40000 should be taken out of the income account and transferred to another account which will be shown on the liabilities side of the balance sheet to indicate the companies obligation to render in the future service for which it has already been paid this is accomplished by the following journal entry. Cash dr unearned revenue cr 2. At the end of the current financial year december the unearned revenue will be left with a credit balance of 120 after debiting the 6 months earned revenue.

There are two ways of recording unearned revenue. The journal entry is given below. This is true at any time and applies to each transaction. At the end of the period unearned revenues must be checked and adjusted if necessary.