Advance Income and Unearned Revenue in Journal Proper

 

Meaning of Journal Proper

Journal proper refer to the special types of journals which occur occasionally.

These are also known by subsidiary journals.

There are certain types of transactions which are not recorded in other subsidiary books but for the systematic recording.

Systematic recording of all such transactions are made under journal proper by following rules of double entry system of book-keeping.

Some examples of such transactions can be given as below:

Opening entries

Closing entries

Transfer entries

Adjustment entries (outstanding, prepaid, accrued, advance income)

Rectification entries

No special journal (free sample, loss by fire etc)

Rare transaction

  

Unearned Revenue or Advance Income

Sometimes organization can receive some income in advance. It is not income till work complete.

Revenue received in advance before actually performing is called unearned income or revenue.

It is liability till the organization completes the task.

Receipts are considered as income only if they are earned in particular accounting year.

Some unearned or advance revenue are commission and rent.

There are two situations:

The entire amount received is credited to the profit and loss account

The entire amount received is credited to a liability account like unearned revenue account.  

 

PROBLEM: 8A

You have following data: 
Unearned rent received for the year Rs 12,000.

Required: (1) Journal entry; (2) Show in balance sheet 

Journal Entries

Date	Particulars		LF	Amount	Amount
	Cash account           To Advance rent account (Being- unearned rent received)	Dr		12,000	12,000

 

Profit and Loss Account

Particulars		Amount	Particulars		Amount

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Current liabilities: Advance rent		12,000

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PROBLEM: 8B

Out of commission earn Rs 25,000; advance commission is Rs 8,000.

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet 

Journal Entries

Date	Particulars		LF	Amount	Amount
	Cash account           To Advance commission account           To Commission earned account (Being- commission earned and advance received)	Dr		25,000	8,000 17,000

 

Profit and Loss Account

Particulars		Amount	Particulars		Amount
			By Commission received       Less: Unearned	25,000 (8,000)	17,000

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Current liabilities: Unearned or advance commission		8,000	Current asset: Accrued interest

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PROBLEMS   AND   ANSWERS

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

Basic Problem: 8          UNEARNED OR ADVANCE INCOMES

Modi Traders has following extracted data:

(a0 Out of the commission received Rs 30,000 includes Rs 5,000 received in advance.

(b) Advance rent received Rs 6,000; now the entire amount of advance rent received is earned.

(c) Out of the advance commission received Rs 20,000; this month advance commission earned Rs 15,000.

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet

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