They need to calculate revenue per month by divide total amount by the number of months. On 30 April 202X, the company needs to recognize the revenue at the end of each month when service is delivered to the customers.Accounts Debit Credit Cash 1,200 Unearned Revenue 1,200 On 01 April 202X, The company need to make journal entry by debiting cash $ 1,200 and unearned revenue $ 1,200 as they are not yet provide any service to customers.So the company needs to allocate the total revenue to each month. It is a subscription service that customer agree to pay $ 1,200 in exchange for internet service for 14 months (1 year plus 2 months free). Please prepare a journal entry for company ABC. A purchase one year plan, $ 1,200, and receive two months of free service. In order to increase sale, the company offers 2 months free service for customer who purchases 1-year plan which cost $ 1,200. ![]() Subscription Revenue ExampleĬompany ABC is an internet service provider in a samall city. The company will record revenue at the end of the month until the unearned revenue decrease to zero at the end of the contractual period. Accounts Debit Credit Unearned Revenue 000 Revenue 000 The number of months must include any promotional period. ![]() The amount record here equal to cash receive divided by the number of month that service cover. It will ensure that our recording reflects with matching principle, revenue is recorded when service is provided to customers. Accounts Debit Credit Cash 000 Unearned Revenue 000Īt the end of each month, the company needs to make a journal entry to reclass unearned revenue to revenue. Unearned revenue is the liability that is present in balance sheet, so the transaction is not impacted the income statement yet. When the customers make payment, the company should make journal entry by debiting cash and crediting unearned revenue (differed revenue). When we already make a proper revenue allocation every month, it will help to ensure the accuracy of our financial statements at the year-end. It is also basic for the company to prepare quarterly and annual financial statements. The revenue should be recognized on a monthly basis which enables the management to compare the company performance from one month to another. We cannot recognize the revenue base on cash received. The service is base on the contractual period, so the revenue must be allocated base on the period as well. In the subscription model, the company will receive the money first and provide service later. The company only records revenue after goods or service delivery to the customers. They have record unearned revenue and reclass to revenue during the subscription period. The company will receive payments and provide service base on the package period. Some companies even encourage the customesr to pay a year in advance in exchange for a huge discount. The business will require the customers to pay upfront before consuming the service. Subscriptions mostly use in our daily life such as Netflix, Amazon Prime, and many others. The customers must keep paying to consume the service. It is the revenue that company receives by continue offering the monthly service to the customers. The end result would be that the expense would remain on the income statement, and cash removed from the balance sheet.Subscriptions revenue is the business model that company charges the recurring fee base on a monthly, quarterly, or annual basis. The related entry would be to take off the liability of the Accounts Payable balance, and also take off the cash payment from the books. When an expense payable is recorded as A/P, it should be taken off the books once finally paid. ![]() Journal Entry for Payment of Accounts Payable The entry for a $1,000 expense payable accrual should be recorded as follows. Therefore, if the bill is not paid at that same time, a payable should be recorded in order to recognize the liability of having to pay the cash at some later point. The expense is recognized at the point it is incurred – specifically, when the benefit of that expense is received. ![]() When an expense is incurred but not yet paid, an entry to accrue this expense is made. The entry for a $1,000 expense is as follows. This is because the natural balance for cash is also debit, and a balance sheet account. As the expense is going to increase with a debit, the cash paid will decrease with a credit. Whenever an expense is paid for in cash, a journal entry to record this activity is required to be made. When expenses go down, they go down with a credit. This means that when expenses go up, there are recorded with a debit. As an expense account is an income statement account, it has a natural debit balance.
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