Example 7 - Revenue Recognition and Invoicing Without Reconciliation
A company recognizes revenue for 1,200.00 over a two-month period. During the second month, the company processes an invoice for 1,200.00. The original cost per unit is 10.00 for 100 units. The cost of each unit is recorded in the Work in Process account. After the revenue is recognized for the units, the cost is moved from the Work in Process account to the Cost of Goods Sold account. The revenue for each unit is recognized as 12.00 per unit. The markup for June is 120.00 and the markup for July is 80.00.
The journal entries are:
G/L Date |
Account |
Debit |
Credit |
|---|---|---|---|
June 30, 2005 |
Work in Process |
600.00 |
|
June 30, 2005 |
Accounts Payable |
(600.00) |
|
June 30, 2005 |
Accrued Receivable |
720.00 |
|
June 30, 2005 |
Revenue |
(720.00) |
|
June 30, 2005 |
Cost of Goods Sold |
600.00 |
|
June 30, 2005 |
Work in Process |
(600.00) |
|
July 31, 2005 |
Work in Process |
400.00 |
|
July 31, 2005 |
Accounts Payable |
(400.00) |
|
July 31, 2005 |
Accounts Receivable |
1,200.00 |
|
July 31, 2005 |
Accrued Receivable |
(1,200.00) |
|
July 31, 2005 |
Accrued Receivable |
480.00 |
|
July 31, 2005 |
Revenue |
(480.00) |
|
July 31, 2005 |
Cost of Goods Sold |
400.00 |
|
July 31, 2005 |
Work in Process |
(400.00) |
During the revenue process for June, billing AAI table number 4811, Actual Revenue, first directs the 720.00 revenue amount to the Revenue account. Billing AAI table number 4832, Accrued Receivable, directs the 720.00 for accrued receivable to the Accrued Receivable account.
During invoicing with revenue recognition for July, the system uses the RC AAI to debit the Accounts Receivable account for the amount of the invoice. Then the system uses billing AAI table number 4832, Accrued Receivable, to create a 1,200.00 credit.
The system also determines whether the workfile transactions that make up the 1,200.00 invoice require any revenue adjustments. In this example, a 480.00 workfile transaction was not included in the revenue batch prior to creating the invoice. The system creates two additional journal entries for the revenue adjustments that are applicable to the workfile transaction.
The system uses billing AAI table number 4811, Actual Revenue, to adjust the 480.00 and to create a credit to the Revenue account. Then the system uses billing AAI table 4832, Accrued Receivable, to adjust accrued receivables by 480.00 and to create a debit to the Accrued Receivable account.
Finally, billing AAI table number 4841 reduces the Work in Process account by the cost account each month, and billing AAI table number 4842 increases the Cost of Goods Sold account by the cost amount each month.
The Work in Process account postings and balances for June in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
600.00 |
600.00 |
The Accounts Payable account postings and balances for June in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
600.00 |
(600.00) |
The Accrued Receivable account postings and balances for June in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
720.00 |
720.00 |
The Revenue account postings and balances for June in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
720.00 |
(720.00) |
The Work in Process account postings and balances for June in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
600.00 |
600.00 |
|
June 30, 2005 |
600.00 |
0 |
The Cost of Goods Sold account postings and balances for June in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
600.00 |
600.00 |
The Work in Process account postings and balances for July in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
July 31, 2005 |
400.00 |
400.00 |
The Accounts Payable account postings and balances for July in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
600.00 |
(600.00) |
|
July 31, 2005 |
400.00 |
(1,000.00) |
The Accrued Receivable account postings and balances for July in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
720.00 |
720.00 |
|
July 31, 2005 |
1,200.00 |
(480.00) |
The Revenue account postings and balances for July in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
720.00 |
(720.00) |
|
July 31, 2005 |
480.00 |
(1,200.00) |
The Accrued Receivable account postings and balances for July in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
720.00 |
720.00 |
|
July 31, 2005 |
1,200.00 |
(480.00) |
|
July 31, 2005 |
480.00 |
0 |
The Work in Process account postings and balances for July in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
July 31, 2005 |
400.00 |
400.00 |
|
July 31, 2005 |
400.00 |
0 |
The Cost of Goods sold account postings and balances for July in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
600.00 |
600.00 |
|
July 31, 2005 |
400.00 |
1,000.00 |