Example 8 - Revenue Recognition and Invoicing with 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 for June 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 |
Accrued Revenue |
(720.00) |
|
June 30, 2005 |
Cost of Goods Sold |
600.00 |
|
June 30, 2005 |
Work in Process |
(600.00) |
The Work in Process account postings and balances for June (revenue recognition) 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 (revenue recognition) 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 (revenue recognition) in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
720.00 |
720.00 |
The Accrued Revenue account postings and balances for June (revenue recognition) 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 (revenue recognition) 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 (revenue recognition) in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
600.00 |
600.00 |
In June, billing AAI table number 4811, Actual Revenue, first directs the 720.00 revenue amount to the Revenue account. Billing AAI table number 4831, Accrued Revenue, directs the 720.00 for accrued revenue to the Accrued Revenue account.
The journal entries for July are:
G/L Date |
Account |
Debit |
Credit |
|---|---|---|---|
July 31, 2005 |
Accrued Receivable |
480.00 |
|
July 31, 2005 |
Accrued Revenue |
(480.00) |
|
July 31, 2005 |
Cost of Goods Sold |
400.00 |
|
July 31, 2005 |
Work in Process |
(400.00 |
|
July 31, 2005 |
Accounts Receivable |
1,200.00 |
|
July 31, 2005 |
Accrued Receivable |
(1,200.00) |
|
July 31, 2005 |
Accrued Revenue |
1,200.00 |
|
July 31, 2005 |
Revenue |
(1,200.00) |
The Work in Process account postings and balances for July (invoicing and revenue recognition) in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
600.00 |
600.00 |
|
July 31, 2005 |
400.00 |
1,000.00 |
|
July 31, 2005 |
(400.00) |
600.00 |
|
July 31, 2005 |
(600.00) |
0 |
The Cost of Goods Sold account postings and balances for July (invoicing and revenue recognition) 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 Accounts Payable account postings and balances for July (invoicing and revenue recognition) 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 Revenue account postings and balances for July (invoicing and revenue recognition) in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
720.00 |
(720.00) |
|
July 31, 2005 |
480.00 |
(1,200.00) |
|
July 31, 2005 |
1,200.00 |
0 |
The Accrued Receivable account postings and balances for July (invoicing and revenue recognition) in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
720.00 |
720.00 |
|
July 31, 2005 |
480.00 |
1,200.00 |
|
July 31, 2005 |
1,200.00 |
0 |
The Accounts Receivable account postings and balances for July (invoicing and revenue recognition) in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
|||
July 31, 2005 |
1,200.00 |
1,200.00 |
The Revenue account postings and balances for July (invoicing and revenue recognition) in the general ledger are:
Date |
Debit |
Credit |
Balance |
|---|---|---|---|
June 30, 2005 |
|||
July 31, 2005 |
1,200.00 |
(1,200.00) |