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    Unearned Revenue 2 Methods of Recording Unearned Income Income Method Liability Method

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    Jennilou Añasco
    Prepaid rent is an expense paid in advance that has not been used up yet. There are two methods to record prepaid rent in the accounts: 1) the asset method debits prepaid rent, 2) the expense method debits rent expense. At the end of the period, an adjusting entry is made to allocate the used and unused portions of the prepaid rent between the rent expense and prepaid rent accounts.

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    Unearned Revenue 2 Methods of Recording Unearned Income Income Method Liability Method

    Uploaded by

    Jennilou Añasco
    126 views2 pages
    Prepaid rent is an expense paid in advance that has not been used up yet. There are two methods to record prepaid rent in the accounts: 1) the asset method debits prepaid rent, 2) the expense method debits rent expense. At the end of the period, an adjusting entry is made to allocate the used and unused portions of the prepaid rent between the rent expense and prepaid rent accounts.

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    Original Title

    Accounting Notes 2

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    Prepaid rent is an expense paid in advance that has not been used up yet. There are two methods to record prepaid rent in the accounts: 1) the asset method debits prepaid rent, 2) the expense method debits rent expense. At the end of the period, an adjusting entry is made to allocate the used and unused portions of the prepaid rent between the rent expense and prepaid rent accounts.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    126 views2 pages

    Unearned Revenue 2 Methods of Recording Unearned Income Income Method Liability Method

    Uploaded by

    Jennilou Añasco
    Prepaid rent is an expense paid in advance that has not been used up yet. There are two methods to record prepaid rent in the accounts: 1) the asset method debits prepaid rent, 2) the expense method debits rent expense. At the end of the period, an adjusting entry is made to allocate the used and unused portions of the prepaid rent between the rent expense and prepaid rent accounts.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    The T-Account will appear as follows: ASSET METHOD

    Dec 31 – Rent Expense P1, 000


    Rent Expense Prepaid Rent P1, 000
    Dec 1 P3, 000 Dec 31 P2,
    000 EXPENSE METHOD
    Dec 31 – Prepaid Rent P2, 000
    Rent Expense P2, 000
    Prepaid Rent
    Dec 31 P2, 000

    Unearned Revenue 2 methods of recording Unearned Income

    - Income already collected but not yet 1. Income Method – when an income account
    earned is credited at the time the money is received
    - Income received in advance before 2. Liability Method – when a liability account is
    services are rendered. credited at the time the money is received

    INCOME METHOD
    Example: Dec 1 Cash P3, 000
    Commission Income P3, 000
    On December 1, 2016, Mr. Reyes received P3, 000
    as his advance commission for the month of Adjusting at the end of the accounting period
    December. Only P2, 000 has been earned
    Dec 31 Commission Income
    Unearned Commission Income

    December 31 Interest Expense 467.67 ACCRUED INCOME


    Interest Payable 467.67
    - Income already earned but not yet collected
    To record the unpaid expense
    and recorded
    - To adjust accrued income, debit receivable
    P20, 000 x 14% x 60/360 = P467.67
    and credit income

    Examples: Example Problem

    1. Interest Receivable XXX A company receive a 60 day 12% note, dated


    Interest Income XXX December 1, 2016 amounting to P100, 000. Interest is
    2. Commission Receivable XXX receivable upon the maturity date
    Commission Income XXX

    Dec 31 Interest Receivable 1, 000


    Interest Income 1, 000
    To record uncollected Income

    P100, 000 x 12% x 30/360 = P 1, 000


    Adjusting Entries – are journal entries usually
    prepared at the end of the accounting period to
    update the records in order to present accurate

    ADJUSTING
    financial reports

    Accounting Period – any period in the life of the


    ENTRIES business where financial reports are prepared

    2 General Types of Adjustments


    Why is there a need for adjusting entries? 1. Deferral – is the recognition of “an expense
    already paid but not yet incurred” or “an income
    Adjusting entries are needed because there are already collected but not yet earned”
    other transactions which are not yet recorded 2. Accrual – is the recognition of “an expense
    during accounting period. already incurred but unpaid” or “an income
    earned but uncollected”

    Prepaid Expense 2 methods for recording Prepaid Expense

    - Expenses paid in advance which have not yet 1. Asset Method – when an asset account
    been received. At the end of accounting is debited at the time of payment
    period, these are adjusted to reflect asset 2. Expense Method – when an expense
    portion and expired cost. account is debited at the time of payment
    - Expenses already paid but not yet consume

    ASSET METHOD
    Entry at the time of payment
    Example problem for Prepaid Expense Dec 1 – Prepaid Rent P3, 000
    Cash P3, 000
    On December 1, 2016, the business paid P3, 000 Payment of 3 months rental
    for 3 months rental starting December 1 Adjusting at the end of accounting period
    Dec 31 – Rent Expense P1, 000
    Prepaid Rent P1, 000
    To record expire cost

    The T-Account will appear as follows: EXPENSE METHOD


    Entry at the time of payment
    Prepaid Rent Dec 1 – Rent Expense P3, 000
    Dec 1 P3, 000 Dec 31 P1, 000 Cash P3, 000
    To record payment of Rent
    P2, 000 Adjusting at the end of accounting period
    Dec 31 – Prepaid Rent P2, 000
    Rent Expense Rent Expense P2, 000
    Dec 1 P1, 000 To record Prepaid Rent

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