Customer Revenue Received in Advance
A business received revenue in advance of 4,000 from a customer for services yet to be provided.
The double entry bookkeeping journal entry to show the revenue received in advance is as follows:
Revenue Received in Advance Journal Entry
The accounting records will show the following bookkeeping transaction entries to record the revenue received in advance.
| Account | Debit | Credit |
|---|---|---|
| Cash | 4,000 | |
| Unearned revenue | 4,000 | |
| Total | 4,000 | 4,000 |
Revenue Received in Advance Journal Entry Explained
Debit
Cash has been received by the business and deposited into its bank account. The debit records the increase in the cash balance in the balance sheet of the business.
Credit
The credit to the balance sheet unearned revenue account, represents a liability to the customer for services yet to be provided.
The revenue is unearned as the services have not yet been provided. In accordance with the realization accounting principle, the amount cannot be recorded as revenue until it is earned.
Accounting Equation – Revenue Received in Advance
The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the equity of the business. This is true at any time and applies to each transaction.
For this transaction the accounting equation is shown in the following table.
| Assets | = | Liabilities | + | Owners Equity |
|---|---|---|---|---|
| Cash | = | Unearned revenue | + | None |
| 4,000 | = | 4,000 | + | 0 |
In this case an asset (cash) increases as the money is received into the bank account of the business, and a liability (unearned revenue) increases representing the amount owed to the customer in respect of services yet to be provided.
A similar situation occurs if a customer is invoiced in advance of the services being provided. This is more fully explained in our unearned revenue journal entry example.
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