Learning Objectives
LO7
Record an entry to receive cash on deferred
revenue.
LO8
Calculate the amount and record the entry
for deferred revenue when earned.
LO9
Record an entry to pay cash on a deferred
expense.
LO10 Calculate the amount and record the entry
for a deferred expense when incurred.
© 2014 Cengage Learning. All Rights Reserved.
Lesson 21-2
Recording Revenue Received in Advance
LO7
● Cash received for goods or services which
have not yet been provided is called deferred
revenue.
● Deferred revenue is sometimes called unearned
revenue.
© 2014 Cengage Learning. All Rights Reserved.
SLIDE 2
Lesson 21-2
Recording Revenue Received in Advance
Unearned Rent Income
November 1. Received cash for
three months’ rent in advance,
$4,500.00. Receipt No. 905.
Debit
Decreases
Nov. 1
Credit
Increases
Cash
4,500.00
Unearned Rent Income
Nov. 1
Credit Unearned Rent Income
LO7
2
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4,500.00
Debit Cash 1
SLIDE 3
Lesson 21-2
Recording Adjusting Entry for Deferred
Revenue Earned
LO8
Rent Income
Total Rent
Number of
÷
=
Received
Months
$4,500.00 ÷
Rent per
Month
3
Rent per
Month
= $1,500.00
Number of
Amount of
×
=
Months
Adjustment
$1,500.00 ×
2
Debit
Decreases
Unearned Rent Income
3,000.00 Nov. 1
(New Bal.
Dec. 31 Adj.
= $3,000.00
Debit Unearned Rent Income
Credit
Increases
Rent Income
Dec. 31 Adj.
1
© 2014 Cengage Learning. All Rights Reserved.
4,500.00
1,500.00)
3,000.00
2 Credit Rent Income
SLIDE 4
Lesson 21-2
Recording an Expense Paid in Advance
LO9
● Payments for goods or services which have
not yet been received are called deferred
expenses.
© 2014 Cengage Learning. All Rights Reserved.
SLIDE 5
Lesson 21-2
Recording an Expense Paid in Advance
Prepaid Rent
November 1. Paid cash for
three months’ rent in advance,
$4,500.00. Check No. 231.
Credit
Decreases
Debit
Increases
Nov. 1
Prepaid Rent
4,500.00
Cash
Nov. 1
Debit Prepaid Rent
LO9
1
© 2014 Cengage Learning. All Rights Reserved.
Credit Cash
4,500.00
2
SLIDE 6
Lesson 21-2
Recording Adjusting Entry for Deferred
Expenses Incurred
Total Rent
Number of
÷
=
Paid
Months
$4,500.00 ÷
Rent per
Month
×
$1,500.00 ×
3
Dec. 31 Adj.
Rent Expense
3,000.00
= $1,500.00
Months
Incurred
2
Rent per
Month
LO10
Amount of
=
Nov. 1
Adjustment
(New Bal.
Prepaid Rent
Dec. 31 Adj.
4,500.00
1,500.00)
3,000.00
= $3,000.00
Debit Rent Expense 1
Credit Prepaid Rent 2
© 2014 Cengage Learning. All Rights Reserved.
SLIDE 7
Lesson 21-2
Analyzing Deferrals
LO10
● The adjusting entries for deferred revenue and
deferred expenses must be recorded at the end
of a fiscal period in order for the financial
statements to be accurate.
● Each entry for a deferral affects a balance sheet
account and an income statement account.
● If a deferral entry is not recorded, both the
balance sheet and the income statement will be
incorrect.
© 2014 Cengage Learning. All Rights Reserved.
SLIDE 8
Lesson 21-2
Lesson 21-2 Audit Your Understanding
1. When a business receives cash for services
that will be performed in the future, what
type of account is credited?
ANSWER
A liability account
© 2014 Cengage Learning. All Rights Reserved.
SLIDE 9
Lesson 21-2
Lesson 21-2 Audit Your Understanding
2. The adjusting entry for deferred expenses
that have now been incurred includes a debit
to what type of account?
ANSWER
An expense account
© 2014 Cengage Learning. All Rights Reserved.
SLIDE 10