Question Unearned Revenue — OpenTuition Forums

Ttargetacca14y ago

Suppose on 25/04/12, a person buys a 6 month membership at a gym for 2400(400/month). But when he buys he pays only for the first month ie 400. How should the accounting entries be passed, If possible explain the entries for the succeeding months too, also the month end adjusting entries.

My assumption is that the first entry on 25/04/12 will be
Dr Cash 400
Dr A/R 2000
Cr Unearned Revenue 2400 and on 30/04/12 the adjusting entry will be

Dr Unearned Revenue 80
Cr membership sale 80
(80 bcoz (400/30)*6days
Pls help with the remaining entries.

SSangria914y ago#1

As for me, I would make entries only for income earned for current month:
25.04.2012:
Dr Cash 400
Cr Advances received 400

On 30.04.2012 I would recognise in the Income statement part of his membership, that relates to April, i.e. 6 days of 30 (400/30*6): $80.
e.g.
Dr Advances received $80
Cr Sales $80.
The rest I would show in the Balance sheet as a liablity (advances received): $320.

Let's assume that the buyer doesn't pay during May, but he uses his membership.
On 31.05.2012 my entries would be:
Dr Advances received $320 (from 1st May to 24th May we had prepayment from the buyer)
Dr Accounts receivable $80 (for the rest of the month we will charge buyer's debt) - will apprear in the Balance sheet.
Cr Sales $400 (the sum to be recognised in the Income statement for the month).

When the buyer pays, the entries will depend on the accounts.
If accounts show that the buyer has debt (Dr balance on the accounts receivable), entries will be:
Dr Cash $X
Cr Accounts receivable $X

If the buyer pays more than his debt, this overpaying part ($x) will go to the Advances received:
Dr Cash $X+$x
Cr Accounts receivable $X
Cr Advances received $x

etc