B.ACCRUED REVENUE (Receivable)

.......This is used to record an income already earned by the business but not yet collected when the accounting period ends. If the Revenue has not been recorded on the date it was earned it is necessary for us to record an adjusting entry. The purpose of this is to record the omitted Income earned and recognized, together with its corresponding Asset, Accrued Revenue (collectible or receivable) account that took part on that accounting period.

..................“do I have to explain this furthermore? ^_^”

..................“ito daw po ung mga services or other income sources dat has been rendered. so pag narender mo na, nagawa na means may income ka na regardless if a payment has been collected or not, but in this case the business already earned the income yet payment has not been collected, even though as it goes that way, dapat pa rin na irecord natin un, so together with the income that has not yet been recorded goes a Receivable (asset) account, Accrued Revenue”

....................“if and only if the assumption is that those income has not yet been recorded”

.....................................Pro-forma Adjusting Entry
............Accrued ___________ Revenue....................Phpxx
..............................___________ Revenue..................................Phpxx

To Illustrate:
On June 2, 2008 Nobody’s Company omitted to record its laundry service rendered to a customer on account, 2000Php. Payment is expected to be collected on the 28th of April and the company ended its accounting period on a monthly basis.

Analysis:

.................for no journal entry has been recorded to recognize the revenue earned, adjusting entry must be presented to report the revenue earned during the accounting period. And for it has been rendered on account, together with the revenue account, accrued income (receivable) must be debited to record the asset that is expected to be collected even after the accounting period.


................................................Adjusting Entry

............Accrued Service Revenue....................2,000
...........................Service Revenue...................................2,000


Illustrative Case for ACCRUED INTEREST INCOME:

..............On Dec. 2, 2008, Nobody’s Company received a 100,000Php 6%, 60 day-note from Someone Company.

Explanation: (don’t explain ur friends don’t nid 8, ur enemies won’t believe 8 anyway :D (paadlib ^_^V pis) )

Upon receipt of the note on December 2, 2008, the journal entry is

..........................Notes Receivable...........................100,000
..................................Cash.......................................................100,000
.............................................Received a 100,000, 6%, 60 day-note.

Since the note is interest bearing, interest is computed by using the simple formula as follows:

Interest = Principal x Rate of Interest x Time

I=Prt
I= 100,000Php x 6% or 0.06 per year x 60/360
= 1,000Php

The interest on Notes Receivable for 60 days or 2 months period is
1,000Php or 500Php per month.

ANALYSIS:

..................Counting from December 2, 2008 to complete 60 days, the maturity value
of the note will be 101,000Php (Principal= 100,000Php + 1,000Php (Interest)) which will due for collection on January 30, 2009. Recording the interest on Notes of 1,000Php upon maturity date follows that the period of 2009 records the Interest Income of 2008 which is a violation of “Revenue Recognition Principle”. Since the accounting period will end on Dec. 31, 2008 a portion of Interest Income representing December 2 to December 31, 2008 of 500Php should be recorded on Dec. 31, 2008. Record the Interest Income earned during the period and recognizes the corresponding Asset (Accrued Income) account.

.......................................................Adjusting Entry
............2008
...........Dec. 31........Accrued Interest Income..................500
........................................Interest Income.....................................500

.............................In the stated pro-forma adjusting entry for Accrued Income adjustments,
Just fill in the blank of what account that have been accrued, so as of what been accrued are;



Uncollected Rent

Accrued Rent Income..............................xx
................Rent Income...................................xx

Uncollected Interest

Accrued Interest Income........................xx
................Interest Income.............................xx

The account Accrued ___ Income is similar to _____ Receivable. The Term “accrued” when associated with an income accounts connotes “receivable” which means an asset.


EFFECT OF ERROR/ OMISSION ON FINANCIAL STATEMENT

........................If adjusting entry is not prepared on Dec. 31, 2008 the effects are as follows:

Income Statement- since Income has not been recorded, the total income
reported was understated, Thus Net Income is understated.

Balance Sheet- since the Receivable account (Accrued Income) has not been
omitted, the Asset account will now then be understated. Likewise
the Owner’s Equity account will now be understated due to the
understatement of the Net Income.

FINANCIAL STATEMENTS PRESENTATION

Accrued ____ Income being a real account will be presented in the current asset section of the Balance Sheet while the ____ Income as a nominal or temporary account will be reported in the Income Statement.