Prepaid contract and the fiscal year-end: Financial events series, part 26 of 29
Share this article:
Post on twitter:
TechnolOntario has completed their first year of business. As per their prepaid contract with the company upstairs, they have provided network management services. Recall that their $4,000 contract was to be earned evenly over five months (i.e., $800/month). The first month is already accounted for on the financial statements. At the end of their fiscal year on December 31, 2007, TechnolOntario has completed three of the four remaining months of their agreement. The last month will take place in January 2008.
The journal entry would record this as a $2,400 debit for an unearned revenue liability and a $2,400 credit for a services revenue.
The financial statements would read:
Information on this series
To demonstrate how various business transactions and other economic events impact the financial statements, this series tracks the accounts of the first fiscal year of a fictional start-up company called TechnolOntario, Inc. Common financial events are introduced and recorded one by one, and they accumulate on the financial statements as TechnolOntario’s fiscal year progresses.
Note that together these examples form a series of 29 articles. Check our complete list of accounting examples to specifically select which ones you’d like to see. Or you can follow the series from start to finish. This article is part 26 of 29.
<< Previous article in this series
Next article in this series >>
References
Markle, K. (2004, August). Introduction to Accounting. Presentation delivered at Schulich School of Business, York University, Toronto, Canada.
Related Articles and Workbooks
Purchase of goods for resale: Financial events series, part 8 of 29 This example shows how the purchase of goods for resale is recorded in the journal entry and the financial statements.
Record cost of goods sold: Financial events series, part 24 of 29 This example shows how the cost of goods sold is recorded in the journal entry and on the financial statements.
T-accounts In the ledger, accountants keep a running balance of the funds in different accounts using a system called a T-account.
Earning of product sales revenue: Financial events series, part 15 of 29 This example shows how the earning of product sales revenue is recorded on the financial statements.
Purchase current assets on credit: Financial events series, part 17 of 29 This example shows how the purchase of supplies on credit is recorded in the journal entry and financial statements.
Introduction: Financial events series, part 1 of 29 The examples in this series demonstrate how different business transactions are recorded in the financial statements.
Related Videos
