Please help me with some accounting stuff

[Azndude51]

I'm doing some homework and I'm really confused about deferred revenue. I know that it's money that's paid to a company before the service or product is delivered. I also know that it goes on a balance sheet as a liability since the service/product is not yet delivered. However, does it count as revenue on an income statement? Does it only show up in the income statement until AFTER the product/service is delivered?

Thanks in advance

 

[imported_yovonbishop]

IIRC it doesn't get reported as straight revenue until the service has been completed/product has been delivered because were something to go wrong between the time of prepayment and delivery/completion, there may need to be a refund or something like that so you couldn't consider it a revenue.

Basically it's not considered a revenue until the money is in your pocket and the service is completed.

 

[Dacalo]

Deferral of revenues and expenses will occur when cash is received or expended but is not recognizable for financial statement purposes; they typically result in the recognition of a liability or a prepaid expense.

 

[Orsorum]

Look at the transaction this way:

When you receive money for services not yet performed, what J/E is made?
db cash (B/S acct)
cr deferred revenue (B/S acct)

When you perform those services, what J/E is made?
db deferred revenue (B/S acct)
cr revenue (I/S acct)

On that first transaction, no I/S account is being affected. Revenue will be recognized as the services are performed.

 

[Azndude51]

Originally posted by: Orsorum
Look at the transaction this way:

When you receive money for services not yet performed, what J/E is made?
db cash (B/S acct)
cr deferred revenue (B/S acct)

When you perform those services, what J/E is made?
db deferred revenue (B/S acct)
cr revenue (I/S acct)

On that first transaction, no I/S account is being affected. Revenue will be recognized as the services are performed.

I'm sorry, but I'm on my second week of an intro to accounting class with no prior accounting experience. I have no idea what J/E or B/S or I/S mean. I'm assuming db and cr are debit and credit.

 

[Orsorum]

Originally posted by: Azndude51

Originally posted by: Orsorum
Look at the transaction this way:

When you receive money for services not yet performed, what J/E is made?
db cash (B/S acct)
cr deferred revenue (B/S acct)

When you perform those services, what J/E is made?
db deferred revenue (B/S acct)
cr revenue (I/S acct)

On that first transaction, no I/S account is being affected. Revenue will be recognized as the services are performed.

I'm sorry, but I'm on my second week of an intro to accounting class with no prior accounting experience. I have no idea what J/E or B/S or I/S mean. I'm assuming db and cr are debit and credit.

Apologies, abbreviation is the bane of clarity. J/E = journal entry, B/S = balance sheet, I/S = income statement.

 

[Azndude51]

Originally posted by: Orsorum

Originally posted by: Azndude51

Originally posted by: Orsorum
Look at the transaction this way:

When you receive money for services not yet performed, what J/E is made?
db cash (B/S acct)
cr deferred revenue (B/S acct)

When you perform those services, what J/E is made?
db deferred revenue (B/S acct)
cr revenue (I/S acct)

On that first transaction, no I/S account is being affected. Revenue will be recognized as the services are performed.

I'm sorry, but I'm on my second week of an intro to accounting class with no prior accounting experience. I have no idea what J/E or B/S or I/S mean. I'm assuming db and cr are debit and credit.

Apologies, abbreviation is the bane of clarity. J/E = journal entry, B/S = balance sheet, I/S = income statement.

Thanks, that all really helps!

 

[mooglemania85]

J/E and T accounts FTW!