Income received in advance Flashcards
1
Q
Provide the reversing JE for income received in advance for year 1 (i.e income received only in year 2)
A
DR Sales income (P/L)
CR Income received in advance (L)
2
Q
Provide the reversing JE for income received in advance for year 2 (i.e income only received in year 2)
A
DR Income received in advance (L)
CR Sales income (P/L)
3
Q
What is typical for bookkeepers to record all receipts from customers as?
A
As income
4
Q
Why is an adjusting entry used for income received in advance? (2)
A
- Preventing income being reported before it has been earned
- Recognising amounts received in advance as a liability called “income received in advance” or “deferred income”
5
Q
When is there a reversing entry, regarding income received in advance?
A
Only if bookkeepers record receipts from customers as income, there is a reversing entry on Day 1 of year 2
6
Q
Why is this reversing entry processed? (2)
A
- To remove the liability
- Adding the income in the year that it is earned
