Which of the following is an example of unearned revenue?

Which of the following is an example of unearned revenue?

Revenue from unearned services

Resolution of February 10, 2021, of the Spanish Accounting and Auditing Institute (Instituto de Contabilidad y Auditoría de Cuentas), issuing rules for the recording, valuation and preparation of the annual accounts for the recognition of income from the delivery of goods and services.

The General Accounting Plan (PGC) approved by Royal Decree 1514/2007, of November 16, 2007, includes in its second part the recording and valuation rules that develop the accounting principles and other provisions contained in the first part relating to the Conceptual Framework of Accounting. This resolution constitutes the regulatory development of the criteria for the recognition of income from the delivery of goods and the rendering of services.

For this purpose, the third final provision of Royal Decree 1514/2007, of November 16, 2007, empowers the Instituto de Contabilidad y Auditoría de Cuentas (ICAC) to approve, by means of a resolution, mandatory rules that develop the PGC and its complementary rules, in particular, in relation to the recording and valuation rules and the rules for the preparation of the annual accounts.

What type of account is unearned income?

An obligation to provide services or deliver goods in the future for the receipt of an advance payment. A liability that is created when a business collects cash in advance from customers for providing a service.

What are the accrued revenues?

Accrued income is the accounting moment when there is a legal right to collect taxes, social security fees and contributions, contributions for improvements, duties, products, benefits, income derived from financing, as well as from the sale of goods, rendering of services, etc., and when there is a legal right to collect these services.

What are accrual accounts?

The accrual is the recording of rights and obligations that expire on a normal date in a fiscal year and/or after the close of the accounting period, such as revenues, costs, expenses, which must be recorded at the close of the period, taking into account the time, whether short or long term.

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Accrual and payment of accrued interest to which account it belongs

By virtue of the accrual principle, these revenues and expenses will be considered when calculating the result of the corresponding fiscal year. For this reason, they must be reflected in the accounting records at the same time as the collection rights and payment obligations they generate. Thus, their accounting record can be summarized:

It may be the case that on the due date amounts are collected or paid in excess of those recorded in the corresponding accounts of debts or receivables, as a result of the accrual – in the year of maturity – of income and expenses inherent to the previous debits and credits. They must therefore be recorded:

Therefore, the PGC represents the debts and receivables arising from these items according to their origin and maturity. Thus, if the income and expenses do not refer to interest, they are recorded in Group 4 accounts, “Trade accounts receivable and payable”.

In many cases, receivables are expressed through accounts 430, “Trade receivables”, and 440, “Accounts receivable”, and payables through accounts 400, “Trade payables”, and 410, “Accounts payable for services rendered”. In the case of both receivables and payables, the first accounts mentioned have their origin in the company’s main activity, while the others indicate that they arise from operations other than those constituting the company’s corporate purpose.

What does unearned mean in accounting?

An accrual can be said to be a claim incurred that has not yet been collected, or an obligation acquired that has not yet been paid … … The accrual principle, in short, establishes that gains and losses should be recognized on a time basis, irrespective of whether they have been collected or paid.

What are unearned expenses?

An expense that has already been incurred but has not yet been paid. A common situation that occurs, for example, in a month’s telephone expense whose receipt is not issued until the following month and, therefore, is not paid at the time the expense is incurred.

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How are accrued expenses recorded?

Companies handle accrued expenses by making adjusting entries in the ledger. Understand why you have to accrue expenses. The accrual basis of accounting states that you should record revenues and expenses in the period in which they were incurred, not when the money is received or paid.

Revenues earned and received

It may be that the company, even without having rendered a certain service, collects it; or that, without having received a certain service, it pays it. In such cases, the company collects an unearned revenue and pays an unearned expense. Despite this circumstance, it records them for accounting purposes:

On the other hand, collected and unearned income is recorded in accounts 485, “Prepaid income”, and 585, “Interest collected in advance”, which are liabilities. The distinction between these accounts is that account 585 only deals with interest on loans granted by the company.

In this way, the advertising expenses accrued in fiscal year X0, which reflect the advertising services received up to the date indicated, i.e. those corresponding to the period from March 1 to December 31, X0, are included in the calculation of the result for fiscal year X0. For accounting purposes, this will be recorded:

On the other hand, as of December 31, “MAJO, SA” has not yet benefited from the advertising of January and February X1. These are expenses not accrued in fiscal year X0, and therefore do not affect the determination of the result for fiscal year X0, hence these expenses are temporarily derecognized. The closing balance sheet shows this circumstance, as the “Prepaid expenses” account appears on the assets side, indicating the existence of expenses paid but not accrued in fiscal year X0.

What is accrual and example?

The accrual basis is an accounting rule that establishes that transactions or economic events are recorded when they occur, regardless of the date of payment or collection.

What does the word accrual mean?

m. Right. The moment at which the obligation to pay a tax arises.

When is income accrued?

Income is accrued in the year in which the service for which the commission is paid is completed, provided that there is no condition precedent and the consideration or part thereof is not fixed by reference to an event or occurrence in the future.

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Accrued income examples

Cash may be received in a period before or after the obligations are fulfilled (when the goods or services are delivered) and the corresponding revenue is recognized, giving rise to the following two types of accounts:

The first two criteria above are referred to as Fulfillment. Fulfillment occurs when the seller has done most or all of what it is supposed to do to be entitled to payment. For example: A company has sold the good and the customer leaves the store without the product warranty. The seller has completed its performance, as the buyer now owns the good and also all the risks and rewards associated with it. The third criterion is called collectability. The seller must have a reasonable expectation of being paid. An allowance account should be created if the seller does not have full assurance of receiving payment. The fourth and fifth criteria are called Measurability. Because of the Matching Principle, the seller must be able to match the expenses with the revenue they helped to earn. Therefore, both the amount of income and the amount of expenses must be reasonably measurable.