Someone PLEEEEEEEEASE help me on how to record this..................?

Question

I am in an accounting class and we are doing adjusting entries.

How would I record "Unearned commission revenue still unearned, $7,750" ?

I debited commission revenue and credited unearned commission revenue.
Apparently that's wrong.

This is for a major project. Someone help me please. : (

Answer 1

Three easy steps:

1. Original entry. You bill the customers (or receive it in cash)

Accounts Receivable (or cash): Debit $N dollars
Unearned Revenues: Credit $N dollars

Note: Unearned revenues is a liability because you "owe" the service/goods to someone in the future.

Addendum: JerryWV, with all due respect, yes you do "owe" someone for deferred revenues. I think we're on the same page here, but this is a matter of verbal interpretation of "owe". You do "owe" the unearned revenue because it isn't earned yet. This is one of the three metrics under accounting that qualifies it as a liability (and why it's recorded as a liability). Deferred revenues are measurable, probable and it's enforceable as a result of a past transaction/event. You have collected the cash (or at least billed them), but have not yet performed on your end of the service/good delivery. Let's take some examples: you own a lawn mowing company and you collect 12 months of cash up front for $1,200 ($100 month) on 1 January 2007. At the beginning of February, you booked $100 in revenues and the remaining $1,100 is in deferred revenues. You can't just sit on your duff waiting to earn the other $1,100. You owe your client the service of mowing lawns for the rest of the 11 months of the year in order to recognize revenues. If you don't you have to pay back the $1,100. Thus, we're saying the same thing.

2. Cash is received.
Cash: Debit $X dollars
Accounts receivable: Credit $X dollars

Note: This is just swapping A/R for cash. It is a balance sheet change and has no impact on the income statement since this transaction does not satisfy the "revenue principle"

3. Adjusting entry: When service/good is delivered under "revenue recognition" principle.

Unearned revenues: Debit $N - $7,750
Revenues: Credit $N-$7,750

Note: You have to back into the adjusting entry because you know what you're left with, but not what the adjusting entry (hence, why you must subtract $7,750 from $N)

Answer 2

If you already received it and its in income then debit income and credit unearned income. If you havent received it yet, debit a/r and credit unearned income.

csanda, you don't owe someone for unearned revenue. It's revenue that is deferred until you acutually earn it.

Irene, your adjustment is correct if when the revenue was accrued or received and the full amount was credited to income. Then you would debit income and credit unearned as you did.

Answer 3

nope