How to Adjust the Balances of Unearned Revenue

Save
Adjusting the balances of unearned revenue in the general ledger allows for the conversion of the unearned revenue to actual revenue.
Adjusting the balances of unearned revenue in the general ledger allows for the conversion of the unearned revenue to actual revenue. (Image: Duncan Smith/Photodisc/Getty Images)

Unearned revenue is any cash payment received before the work for the payment is completed. It’s not considered revenue for accounting purposes until you complete the work, so instead of being recorded directly as revenue in the general ledger, it’s recorded instead as a liability. After completion of the work, an adjustment entry is necessary, turning the liability into actual revenue with the second entry and removing it from the unearned revenue account in the process.

Record the receipt of the unearned revenue in the general ledger as a debit to the cash account and a credit to the unearned revenue account. Place the date in the first column of the ledger, both month and day, then in the transaction details place Cash on the first line. Indent the second line and place Unearned Revenue. Place the amount of the unearned revenue in the debit column, the left column, for cash, and in the credit column on the right for unearned revenue.

Earn the revenue paid in advanced by doing whatever work you were hired to complete.

Adjust the balances after earning the revenue by changing the accounts to reflect the revenue. Make a second entry in the general journal to show the earnings. Place the date. Write Unearned Revenue on the first line of transaction details, and place the amount of the revenue in the Debit column for that line. This will remove the funds from the Unearned Revenue account. Indent the second line of transaction details and then write Revenue, with the amount of the revenue in the Credit column. This will add the Unearned Revenue to the Revenue account.

Related Searches

References

Promoted By Zergnet

Comments

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!