Prepaid  Revenue<br />
Prepaid  Revenue<br />Determining revenue earned for a period<br />Profit = revenue earned in a particular period less exp...
Prepaid Revenue<br />When a Trial  Balance is Prepared , accounts reflect the cash transactions that have taken place with...
Hey! I am off to Africa!<br />
Buy air tickets!<br />When would I buy the plane tickets from Australia to Sth Africa?<br />I need to attend our son’s wed...
Buying plane tickets<br />Well in advance for my planned future trip<br />Cash is paid up front<br />Airline has accepted ...
Therefore.....<br />Qantas (airline) could have $1000’s of cash that has not yet been earned<br />Should this be treated a...
I love gardening!<br />
Looking for magazines to help with gardening.<br />
Why buy in advance?<br />What are my options if I like Better Homes and Gardens and want it delivered to my home? <br />
What if?<br />I buy the two year subscription on July 1st 2010<br />At that point both subscriptions are prepaid, as I do ...
How do we classify prepaid revenue?<br />When the payment for the magazine subscription is paid, have I received any magaz...
A personal experience!<br />Six years ago I paid $60 for a three year subscription to a gardening magazine. <br />After 18...
For how many more months should I really have received the magazine?<br />Will they, should they, refund the unused subscr...
Happyending!<br />The magazine company did refund the unused amount.<br />Therefore............<br />			How is prepaid <br...
Prepaid Revenue<br />= current liability <br />At time when prepaid revenue is made, it is all placed in a Prepaid Revenue...
Prepaid Magazine Subscriptions<br />1st July 2010<br />
Liability becomes a revenue when....<br />The commitment is fulfilled, the liability will be eliminated <br />The revenue ...
Let’s assume<br />Better Homes and Gardens has $20,000 prepaid magazine subscriptions. How would it look in the ledger acc...
Prepaid Magazine Subscriptions<br />Cash at Bank<br />$20,0000<br />1st July 2010<br />Magazine Subscriptions<br />NbOn Ba...
Can you work out the general journal entries?<br />
Prepaid magazine subscription revenue<br />20000<br />20000<br />Magazine revenue<br />Adjusting entry for magazine subs e...
Prepaid Magazine Subscriptions<br />1st July 2010<br />30th June 2011<br />Cash at Bank<br />Magazine Subs Revenue<br />$2...
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Prepaid Revenue

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Showing how prepaid revenue is treated in the books of a business for students who are studying Unit 4 VCE Accounting.

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Prepaid Revenue

  1. 1. Prepaid Revenue<br />
  2. 2. Prepaid Revenue<br />Determining revenue earned for a period<br />Profit = revenue earned in a particular period less expenses incurred in that period of tiem<br />
  3. 3. Prepaid Revenue<br />When a Trial Balance is Prepared , accounts reflect the cash transactions that have taken place within the reporting period.<br />
  4. 4. Hey! I am off to Africa!<br />
  5. 5. Buy air tickets!<br />When would I buy the plane tickets from Australia to Sth Africa?<br />I need to attend our son’s wedding on July 15th, 2012<br />
  6. 6. Buying plane tickets<br />Well in advance for my planned future trip<br />Cash is paid up front<br />Airline has accepted the money for a future booking (We used Qantas!)<br />Cash is paid up front with the promise of something in the future.<br />
  7. 7. Therefore.....<br />Qantas (airline) could have $1000’s of cash that has not yet been earned<br />Should this be treated as revenue<br />NO!<br />The business has not yet fulfilled its obligations!<br />Therefore the business has not yet earned its revenue.<br />
  8. 8. I love gardening!<br />
  9. 9. Looking for magazines to help with gardening.<br />
  10. 10.
  11. 11. Why buy in advance?<br />What are my options if I like Better Homes and Gardens and want it delivered to my home? <br />
  12. 12. What if?<br />I buy the two year subscription on July 1st 2010<br />At that point both subscriptions are prepaid, as I do not have any magazines yet.<br />Therefore we open up a Prepaid Magazines Subscription Revenue Ledger Account in the books of Better Homes and Gardens and put the total of ?(how much) in there?<br />
  13. 13. How do we classify prepaid revenue?<br />When the payment for the magazine subscription is paid, have I received any magazines?<br />When will I receive my first magazine?<br />
  14. 14. A personal experience!<br />Six years ago I paid $60 for a three year subscription to a gardening magazine. <br />After 18 months of receiving the magazine, I got a letter to say they had stopped publishing the magazine. <br />
  15. 15. For how many more months should I really have received the magazine?<br />Will they, should they, refund the unused subscription amount?<br />Questions!<br />
  16. 16. Happyending!<br />The magazine company did refund the unused amount.<br />Therefore............<br /> How is prepaid <br /> revenue classified?<br />
  17. 17. Prepaid Revenue<br />= current liability <br />At time when prepaid revenue is made, it is all placed in a Prepaid Revenue Ledger Account.<br />
  18. 18. Prepaid Magazine Subscriptions<br />1st July 2010<br />
  19. 19. Liability becomes a revenue when....<br />The commitment is fulfilled, the liability will be eliminated <br />The revenue is recognized as being earned<br />It then comes out of the Prepaid Revenue account into the Revenue Account.<br />Nb On Balance Day, the revenue that has been consumed is pulled out of prepaid revenue ledger and placed in the appropriate revenue account.<br />
  20. 20. Let’s assume<br />Better Homes and Gardens has $20,000 prepaid magazine subscriptions. How would it look in the ledger accounts?<br />
  21. 21. Prepaid Magazine Subscriptions<br />Cash at Bank<br />$20,0000<br />1st July 2010<br />Magazine Subscriptions<br />NbOn Balance Day, the revenue that has been consumed is pulled out of prepaid revenue ledger and placed in the appropriate revenue account.<br />
  22. 22. Can you work out the general journal entries?<br />
  23. 23. Prepaid magazine subscription revenue<br />20000<br />20000<br />Magazine revenue<br />Adjusting entry for magazine subs earned<br />Prepaid magazine revenue<br />20000<br />P and L summary<br />20000<br />Closing entry<br />
  24. 24. Prepaid Magazine Subscriptions<br />1st July 2010<br />30th June 2011<br />Cash at Bank<br />Magazine Subs Revenue<br />$20,0000<br />$20,0000<br />Magazine Subscriptions<br />30th June 2011<br />$20,0000<br />Prepaid Magazine Subs<br />$20,0000<br />30th June <br />2011<br />P and L Summary<br />Nb On Balance Day, the ledger accounts would look like the above.<br />

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