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If I sell goods( asset) which I have not yet billed to customer but have completed the deliveries and the revenue associated to that goods are due in arrear , why is this held in the balance sheet and not the income statement as it is Revenue earned thought not yet billed ?
How do I represent this accrued income on the balance sheets and by what name ?I’m not sure, from your post, how this transaction has been recorded
From what I can see there are (at least) two ways in which something related to this transaction could be shown as “held in the balance sheet”
Maybe:
1 Dr Receivables
Cr Revenuein which case the sale is shown as a receivable, or
2 Account for these goods as Inventory in the Hands of Third Parties
This would require an increase to the closing inventory figure in the cost of sales calculation (thereby increasing the year’s recorded profits) and an increase in that same figure in the statement of financial position (the increase in net assets therefore balancing the increase in profits)
The goods have been delivered but not yet billed so, at least in theory, my first suggestion shouldn’t be possible
That leaves me with the scenario that a customer has ordered goods, we have delivered them, but no paperwork has been raised. But you tell me that the related amount “held in the balance sheet” and I don’t see how that could have happened
The corrective treatment to the scenario that no recording entry has so far been made would be:
Dr Receivables
Cr Revenueunless this is genuinely a sale that relates in full to next year and control of those goods has not passed (so we could recover them at any stage until we raise an invoice for them)
If that is the correct situation, we need to put through the inventory adjustment that I explained earlier
Where have you found this question?
Thank you so much because I was almost confused with the question since the bill has not be raised but goods completely sold to customer and accrued revenue was held as an asset in the balance without documentation . The receivable that you debited was what the examiner was looking at which will eventually be the balance sheet when the bill is raised .
What actually confused me was the Term ACCRUED REVENUE .“… and accrued revenue was held as an asset in the balance without documentation”
And now I’m confused! Revenue is a credit figure and accrued revenue is an accrued credit so there’s no way that it can be shown in the year end statement of financial position as an ASSET!
The only way in which accrued revenue could appear on a statement of financial position (within the liabilities section) is where there is a corresponding debit entry
I can only imagine that that debit is the first line of the journal entry:
Dr Receivable
Cr Deferred Revenuein which case both the debit amount AND the credit amount will appear on the statement of financial position as at the year end
The term Accrued Revenue simply indicates that the revenue from the transaction relates to next year’s figures and not to this year
Incidentally, for the matter to have been recorded as I have suggested above, this contradicts your opening post where you state that the transaction is as yet unbilled
Confusion remains, sorry!
The question was , what is an accrued revenue ? and where will this figure appeared in balance sheet. But when I looked at the answer , it states that this is an asset class of goods or services that have been sold or completed but the associated revenue not yet billed to the customer and this accrued revenue include income due in arrears which will be treated as as an asset in the SOFP than liabilty
You have either misunderstood the text or the text is itself confusing
There is no doubt AT ALL that revenue (whether it be recognised this year or accrued in respect of this year or deferred until future years), ALL revenue is income and income is recorded as a credit
The corresponding debit is cash or receivable but there is no way within recognised double entry bookkeeping systems that revenue (or whatever description) could be shown as an asset
Sorry!
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