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 income received in advance.
Revenue Received in Advance Journal Entry Explained
Firstly the business receives cash and deposits it into it’s bank account. Consequently the debit records the increase in the cash balance in the balance sheet of the business.
Secondly the credit to the balance sheet unearned revenue account, represents a liability to the customer for services yet to be provided.
In this case 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. It is important to realize that this is true at any time and applies to each transaction.
The following table shows the accounting equation for income received in advance transaction.
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.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.