Liability and Revenue Methods
accruals
deferrals
cash AFTER event
cash BEFORE event
Liability and Revenue Methods
Deferrals and accruals are presented in Chapters 3
and 4. In first discussion a handout was distributed
to practice alternatives of accounting for ASSET and
EXPENSE and for LIABILITY and REVENUE
methods.
This presentation attempts to cover the lower half of
the handout dealing with liability and revenue
methods of accounting for unearned revenue. To
follow along you will need the handout distributed in
class or available elsewhere online.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
These facts are stated on the handout:
The unearned advertising revenue at the beginning
of the year is $20,000, revenues received in advance
during the year total $130,000, and the unearned
advertising revenue at the end of the year is
$18,000.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
These instructions are stated on the handout for part (a):
Record the following directly in the T accounts for
Unearned Advertising Revenue and Advertising Revenue,
employing the system of initially recording advertising
fees as a LIABILITY. Identify each entry by number: (1)
beginning balance; (2) revenues received during the
period; (3) adjusting entry at the end of the period; (4)
closing entry; (5) reversing entry, if necessary.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
First, let’s establish whether we are dealing with an
ACCRUAL or a DEFERRAL. Just as in class, it is always
best, even in this presentation, for you to make up your
mind, answer it to yourself, before you see the answer
here.
Have you decided?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Let’s find a hint in the facts on the handout and on a
previous slide:
These facts are stated on the handout:
The unearned advertising revenue at the beginning
of the year is $20,000, revenues received in advance
during the year total $130,000, and the unearned
advertising revenue at the end of the year is
$18,000.
Accrual or deferral? Have you decided?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Still unsure? Then reconsider the time line illustration:
accruals
deferrals
cash AFTER event
cash BEFORE event
The problem suggests we received the cash in
advance; we have to work to earn it. This must be a
DEFERRAL.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
So let’s get started. Re-read the instructions. In which
account should be beginning balance appear?
Unearned Advertising
Advertising Revenue
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Wait. Before we answer that question, let’s be sure you
know all about these two accounts – classifications,
normal balances, financial statements, real or nominal,
closed or not closed, etc. Contrast them.
Unearned Advertising
Advertising Revenue
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Wait. Before we answer that question, let’s be sure you
know all about these two accounts – classifications,
normal balances, financial statements, real or nominal,
closed or not closed, etc. Contrast them.
Unearned Advertising
Advertising Revenue
You answer all those questions for Unearned Advertising
before looking at the answers on the next slide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Wait. Before we answer that question, let’s be sure you
know all about these two accounts – classifications,
normal balances, financial statements, real or nominal,
closed or not closed, etc. Contrast them.
Unearned Advertising
Advertising Revenue
Liability
Credit
Balance Sheet
Real
Not Closed
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Wait. Before we answer that question, let’s be sure you
know all about these two accounts – classifications,
normal balances, financial statements, real or nominal,
closed or not closed, etc. Contrast them.
Unearned Advertising
Advertising Revenue
Liability
Now do the same
Credit
thing for Advertising
Balance Sheet
Revenue. No peeking!
Real
Not Closed
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Wait. Before we answer that question, let’s be sure you
know all about these two accounts – classifications,
normal balances, financial statements, real or nominal,
closed or not closed, etc. Contrast them.
Unearned Advertising
Advertising Revenue
Revenue
Liability
Credit
Credit
Income Statement
Balance Sheet
Nominal
Real
Closed (1st step)
Not Closed
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Wait. Before we answer that question, let’s be sure you
know all about these two accounts – classifications,
normal balances, financial statements, real or nominal,
closed or not closed, etc. Contrast them.
Unearned Advertising
Advertising Revenue
Revenue
Liability
Credit
Credit
Income Statement
Balance Sheet
Nominal
Real
Closed (1st step)
Not Closed
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
So think about the original question. In which account
should be beginning balance appear?
Unearned Advertising
Advertising Revenue
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
So think about the original question. In which account
should be beginning balance appear?
Unearned Advertising
Advertising Revenue
20,000
Because?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
So think about the original question. In which account
should be beginning balance appear?
Unearned Advertising
Advertising Revenue
20,000
Because we have chosen to use the LIABILITY method.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Now the next question on the instructions: (2) revenues
received during the period. In which account?
Unearned Advertising
Advertising Revenue
20,000
You decide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Now the next question on the instructions: (2) revenues
received during the period. In which account?
Unearned Advertising
Advertising Revenue
20,000
130,000
Why?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Now the next question on the instructions: (2) revenues
received during the period. In which account?
Unearned Advertising
Advertising Revenue
20,000
130,000
The key to administering methods is CONSISTENCY.
We have picked a method and we should follow that
method all during that year.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Comparison of Methods
Key to administering methods is
CONSISTENCY
JFMAMJJASOND
20x1
20x2
All during that year
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
How many times do you think we collected cash from
customers? Once? No. Lots. How many times did we
have to decide what to credit?
Unearned Advertising
Advertising Revenue
20,000
130,000
Only ONCE. Because the key to administering methods
is CONSISTENCY! Pick a method and stick with it all
during that year.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Let’s think of a word (adjective) to describe the balance of
Unearned Advertising BEFORE adjustment.
Unearned Advertising
Advertising Revenue
20,000
130,000
You decide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
The balance of Unearned Advertising before adjustment
is MIXED. Both earned and unearned are “stirred”
together in that account.
Unearned Advertising
Advertising Revenue
20,000
130,000
Consider doing nothing. Liabilities are overstated,
revenue is understated, net income in understated.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Making an adjusting entry will make both financial
statements better. What adjusting entry should we make.
Unearned Advertising
Advertising Revenue
20,000
130,000
You decide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
Advertising Revenue
20,000
130,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
Advertising Revenue
20,000
130,000
132,000
Some are probably wondering where to get the
$132,000.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
Advertising Revenue
20,000
130,000
132,000
$20,000 + $130,000 - $18,000 = $132,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
Advertising Revenue
20,000
130,000
Think of a term to describe the $132,000.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
Advertising Revenue
20,000
130,000
Think of a term to describe the $132,000.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
Advertising Revenue
20,000
130,000
132,000
What is the balance of the unearned account now?
And what does it represent?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
Advertising Revenue
20,000
130,000
132,000
B = 18,000
What is the balance of the unearned account now?
And what does it represent?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
Advertising Revenue
20,000
130,000
132,000
B = 18,000
What is the balance of the unearned account now?
And what does it represent?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
Advertising Revenue
20,000
130,000
132,000
B = 18,000
One of these two accounts needs to be closed. Which
one? You decide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
Advertising Revenue
20,000
130,000
132,000
B = 18,000
Advertising Revenue would be closed in the first step
of closing entries.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the earned portion from the unearned account to
the revenue account.
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
132,000
B = 18,000
Advertising Revenue would be closed in the first step
of closing entries.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
(5) Make the reversing entry, if necessary.
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
2. If an adj entry creates bal in BS account – no, Un Adv had a bal.
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
2. If an adj entry creates bal in BS account – no, Un Adv had a bal.
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
Does the decision tree help?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
III. Deferrals
B. 4. b. Decision tree conclusion
Liability
Method
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
2. If an adj entry creates bal in BS account – no, Un Adv had a bal.
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
Does the decision tree help?
This AJE does NOT need to be reversed.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
2. If an adj entry creates bal in BS account – no, Un Adv had a bal.
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
132,000
B = 18,000
But those are rules, rules, rules! Wouldn’t it be better
to UNDERSTAND it?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
What is the “key” in administering “methods?”
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
CONSISTENCY!
… all during that year, and
… from one year to the next
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
Which method did we use THIS year?
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
Liability.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
Which method should we use NEXT year?
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
Liability.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
In which account should be beginning balance
appear?
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
Liability.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
In which account should be beginning balance
appear? Where is it now?
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
B = 18,000
In the liability account.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
In which account should be beginning balance
appear? Where is it now?
Unearned Advertising
132,000
20,000
130,000
Advertising Revenue
132,000
132,000
B = 18,000
In the liability account.
Then leave it alone. No reversing entry is necessary.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
These instructions are stated on the handout for part (b):
Record the following directly in the T accounts for
Unearned Advertising Revenue and Advertising Revenue,
employing the system of initially recording advertising
fees as REVENUE. Identify each entry by number: (1)
beginning balance; (2) revenues received during the
period; (3) adjusting entry at the end of the period; (4)
closing entry; (5) reversing entry, if necessary.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
In which account should be beginning balance appear?
Unearned Advertising
Advertising Revenue
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
In which account should be beginning balance appear?
Unearned Advertising
Advertising Revenue
20,000
Because?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
In which account should be beginning balance appear?
Unearned Advertising
Advertising Revenue
20,000
Because we have chosen to use the REVENUE method.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Now the next question on the instructions: (2) revenues
received during the period. In which account?
Unearned Advertising
Advertising Revenue
20,000
You decide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Now the next question on the instructions: (2) revenues
received during the period. In which account?
Unearned Advertising
Advertising Revenue
20,000
130,000
Why?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Now the next question on the instructions: (2) revenues
received during the period. In which account?
Unearned Advertising
Advertising Revenue
20,000
130,000
The key to administering methods is CONSISTENCY.
We have picked a method and we should follow that
method all during that year.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
How many times do you think we collected cash from
customers? Once? No. Lots. How many times did we
have to decide what to credit?
Unearned Advertising
Advertising Revenue
20,000
130,000
Only ONCE. Because the key to administering methods
is CONSISTENCY! Pick a method and stick with it all
during that year.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Let’s think of a word (adjective) to describe the balance of
Advertising Revenue BEFORE adjustment.
Unearned Advertising
Advertising Revenue
20,000
130,000
You decide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
The balance of Advertising Revenue before adjustment is
MIXED. Both earned and unearned are “stirred” together
in that account.
Unearned Advertising
Advertising Revenue
20,000
130,000
Consider doing nothing. Revenue is overstated,
liabilities are understated, net income in overstated.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Making an adjusting entry will make both financial
statements better. What adjusting entry should we make.
Unearned Advertising
Advertising Revenue
20,000
130,000
You decide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the unearned portion from the earned account to
the liability account.
Unearned Advertising
Advertising Revenue
20,000
130,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the unearned portion from the earned account to
the liability account.
Unearned Advertising
18,000
Advertising Revenue
18,000
20,000
130,000
The $18,000 was described in the problem as
unearned.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the unearned portion from the earned account to
the liability account.
Unearned Advertising
18,000
Advertising Revenue
18,000
20,000
130,000
B = 132,000
One of these two accounts needs to be closed. Which
one? You decide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the unearned portion from the earned account to
the liability account.
Unearned Advertising
18,000
Advertising Revenue
18,000
20,000
130,000
B = 132,000
One of these two accounts needs to be closed. Which
one? You decide.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the unearned portion from the earned account to
the liability account.
Unearned Advertising
18,000
Advertising Revenue
18,000
20,000
130,000
B = 132,000
Advertising Revenue
Income Summary
132,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
Under these circumstances the adjusting entry should
transfer the unearned portion from the earned account to
the liability account.
Unearned Advertising
18,000
Advertising Revenue
Income Summary
Advertising Revenue
18,000
132,000
20,000
130,000
132,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
132,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary.
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
2. If an adjusting entry creates balance in a BS account....
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
2. If an adjusting entry creates balance in a BS account....
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
20,000
130,000
The $18,000 credit in Unearned Advertising is the
FIRST entry in that Balance Sheet account. It DOES
need to be reversed.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
2. If an adjusting entry creates balance in a BS account....
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
Does the decision tree help?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
III. Deferrals
B. 6. Reversing Entries Necessary?
Revenue
Method
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
2. If an adjusting entry creates balance in a BS account....
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
Does the decision tree help?
This AJE DOES need to be reversed.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
1. “All accruals need to be reversed” – won’t work – deferral.
2. If an adjusting entry creates balance in a BS account....
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
20,000
130,000
But those are rules, rules, rules! Wouldn’t it be better
to UNDERSTAND it?
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
What is the “key” in administering “methods?”
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
CONSISTENCY!
… all during that year, and
… from one year to the next
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
Which method did we use THIS year?
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
Revenue.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
Which method should we use NEXT year?
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
Revenue.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
In which account should be beginning balance
appear?
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
Revenue.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
In which account should be beginning balance
appear? Where is it now?
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
In the liability account.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
In which account should be beginning balance
appear? Where is it now?
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
20,000
130,000
In the liability account.
There is no “normal” transaction next year that will move the
balance to the revenue account where it belongs.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Liability and Revenue Methods
(5) Make the reversing entry, if necessary. Let’s decide.
In which account should be beginning balance
appear? Where is it now?
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
In the liability account.
It needs to be reversed.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry,.
Reversing entries are the exact opposite of adjusting
entries.
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
20,000
130,000
Liability and Revenue Methods
(5) Make the reversing entry,.
Reversing entries are the exact opposite of adjusting
entries.
Unearned Advertising
18,000
Advertising Revenue
18,000
132,000
Unearned Advertising
Advertising Revenue
20,000
130,000
18,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
18,000
Liability and Revenue Methods
(5) Make the reversing entry,.
Reversing entries are the exact opposite of adjusting
entries.
Unearned Advertising
18,000
18,000
Unearned Advertising
Advertising Revenue
Advertising Revenue
18,000
132,000
20,000
130,000
18,000
18,000
© Copyright 2007 by M. Ray Gregg. All rights reserved.
18,000
Liability and Revenue Methods
(5) Make the reversing entry,.
Reversing entries are the exact opposite of adjusting
entries.
Unearned Advertising
18,000
18,000
Advertising Revenue
18,000
132,000
20,000
130,000
18,000
The $18,000 credit balance is UNEARNED at the
beginning of the year, but it will be EARNED this year.
No other entry will be necessary during the year.
© Copyright 2007 by M. Ray Gregg. All rights reserved.
Conclusion
Congratulations on completing this out-of-class
lesson. You deserve a thousand brownie
points!
I hope you understood it and hope
that it will be beneficial to you. I
would appreciate your comments
or suggestions about its
effectiveness.
rgregg@oru.edu
© Copyright 2007 by M. Ray Gregg. All rights reserved.