Income receivable vs Income recevied in advance

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What is revenue received in advance?

Money already received but not yet earned.


Lilian went "station cut" to have a hair cut.  She was offered the following price for hair cut.

1 time cut  = $6
6 times cut = $30 

Lilian decided to take up the 6 times cut package and she paid $30.

After Lilian went off, the " station cut"  owner happily kept the $30 and took that as the revenue.

From the accounting point of view, the revenue earned for the day will be 30/6 =$5.  The rest of the $25 is known as unearned revenue.  The money received = $30 but the $25 is not earned yet.

The reason is because for the next 5 visits by Lilian, she will not be paying "station cut" as she already paid.

So, from the point of view of "station cut', the $25 is the unearned revenue.  The $25 is considered as at current liability in the Statement of financial position.


What is Revenue receivable?

Money not yet received but service already provided


LiLing is a home tutor.  She will go to the students house to provide private tuition.  She will only collect the tuition fee $200 at the end of 4th time of the tuition.  She already done 3 lessons, 1 Feb,
8 Feb and 15 Feb 2020.  At the date of 15 Feb 2020, she already provided 3 times of tuition {service} but not yet received the money.  The 3 times tuition {$50x3 = $150} is what we called revenue receivable =$150.  She didn't received the money yet but the $150 is what she earned.  The money belongs to her and we considered that as a current asset in the statement of financial position.

1 Feb 2020   $50
8 Feb 2020   $50
15 Feb 2020 $50
                     $150  = earned income but not received

Interpreting of the account

Commission Income Account

 2019

 

 Debit

 Credit

 Balance

 

 

 $

 $

 $

 Jan 1    

 Commission receivable (1)

 8000

 

 8000 Dr

 May 6

 Cash at bank (2)

 

 28000

 20000 Cr

 Dec 31

 commission received in advance (3)

 2000

 

 18000 Cr

 Dec 31

 Income summary (4)

 18000

 

   --

(1)  Income earned in the last accounting period ( 1Jan 2018 -- 31 Dec 2018) but money not yet received.  It will probably received in this accounting period

(2) The cheque received for the commission income for the year.

(3) Commission income received this accounting period (1 Jan 2019 -- 31 Dec 2019) but not yet earned.

(4) Total commission income received for the year to be matched with the expenses in the statement of financial performance.

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