 Hello, and welcome to this session. This is Professor Farhad. In this session, we would look at accrued revenues. Accrued revenues is one of those four adjustments. This topic is covered in financial accounting, also covered on the CPA exam, the FAR section. As always, I would like to remind you to connect with me on LinkedIn if you haven't done so. YouTube is what you would need to subscribe. I have 1,600 plus accounting, auditing, finance, and tax lectures. If you like my lectures, please like them. It doesn't cost you anything. It will help me tremendously. Share them, put them in playlists. Let the world know about them. If they're benefiting you, it means they might benefit other people as well. And please connect with me on Instagram. On my website, you will find additional resources such as notes, multiple choice if you're studying for the CPA exam, exercises quasi-CPA simulation. So I strongly suggest you visit my website if you want to invest more in your CPA career. Let's talk about accrued revenues. What are accrued revenues? Well, accrued revenues are revenues, obviously, earned. That's good. That's when we call revenue a revenue when it's earned. In that period that are both unrecorded and not yet received in cash. If they are received in cash, we don't have to worry about anything. It's not only they were not received in cash yet, we haven't recorded them yet. So what do we need to do? Well, if we have any unrecorded revenue, we need to record the revenue. So as a result, to record the revenue, you have to increase the revenue and you have to increase an asset. Well, think about it. If we don't have cash, what asset do we increase when we increase revenue? We're gonna increase the next best thing to cash which is account receivable. Therefore, we increase an asset, we increase the revenue and basically the debit to a receivable which is an asset in the credit to revenue. Say they both go up, they both go up. Let's take a look at an example. On 1212, fast forward customers agreed to pay 2,400 on January 10th, which is the following year for future services over the next 30 days. So they contracted you to work for 30 days but they will pay you at the end of the contract. Well, what's gonna happen is this, our year end, so this is 1231 year end, they contracted you here but they will not pay you until here. So you're gonna do some work in this year one but you won't be paid until year two in early January. Well, let's see how much is the contract. The contract is for 2,400 over how many days? Over 30 days. Well, let's take 200, 2,700. Let's do the calculator real quick. If we take 2,700, let me reduce the size of this. If we take 2,700 divided by 30 days, we're earning $90 per day. Well, we're earning $90 per day and for year one, we're gonna earn 20 days. Well, if it's 20 days, 20 days, well, we're gonna be earning 20 out of 30 days out of the contract because we're gonna have 20 days in December, remaining in December because December goes up to December 31st. So we're gonna earn 1,800 of the contract which is, we can do it 20 times 90 or 2,700 and we earned 2,3rd of the contract because in year one, we're gonna perform 2,3rd of the work. That's assuming we did perform 2,3rd of the work. If we didn't do any work, then we can't recognize any revenue. We're assuming here that this contract is provided equally, is spread out equally. Therefore what we have to do, we have to adjust an asset called a count receivable. We're gonna increase a count receivable and increase revenue for that amount of 1,800. Therefore the entry is that the count receivable credit consulting revenue. So this is the adjusting entry. This is the adjusting entry to record accrued revenue. You always increase a receivable and you increase a revenue for accrued revenue. Now let's take a look at the balances. When we do the adjustment, now we have 1,800 of receivable and our revenue went up by 1,800. So without this entry, our account receivable will be under reported by 1,800. Now it's properly reported and our revenue would have been under reported by 1,800. Now it's properly reported. So accrued revenues are good. We want to report them because they make us look good. They increase our assets and they would increase our revenue, okay? And to tell you this, this is a side note when companies want to commit fraudulent financial statements, this is the entry that they book. They try to book more receivable and more revenues to inflate fraudulent leader revenue. Now let's talk about the future receipt of revenue because what happened under accrued revenue, you recognize the revenue now and you will get the cash for it later. So let's take a look at when you receive the cash, what entry do we make, okay? Accrued revenue at the end of one period result in a future cash receipt because you did the work. On 1231, fast forward accrued 1,800, we already did this. On January 10th, we're gonna be paid 2,700. That's the good news. What do we do when we get paid? We are going to debit cash. Obviously, we're gonna increase cash 2,700. What do we credit? Well, remember, we have a counter receivable of 1,800. So they promise us 1,800 and we recorded that revenue. Therefore, we have to reduce our account receivable by 1,800 for the 20 days in year one in the prior year. Well, what's left of the contract is 1,300. What's left of the contract is the 1,300 is $900 and that's revenue that we earned from January 1st till the 10th of that year two, from the January 1st till the 10th of year two. So this will be the journal entry when we receive the cash. Let's take a look at the journal entry. So we debit cash. The counter receivable is for the 20 days who reduce the account receivable by 1,800 because they did pay and we increase consulting revenue by 900 because we did work an additional 10 days in the month of January of year two. And that's basically a crude revenue in the next session. We're gonna start to look at the closing process because after we prepare all the adjustments is to prepare an adjusted trial balance then prepare the financial statements. And that's what we'll do next. So basically what we'll do next is prepare an adjusted trial balance first. What I'm gonna do next rather than the closing I'll prepare the adjusted trial balance just to kind of tell you what it looks like because I think I should not jump right into the closing. Then after the adjusted I would look at the closing. I think that's more logical. As always, please like my videos if you like them, share them, visit my website. 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