6: Revenue & Other Income Flashcards
State the Revenue Recognition Theory.
Revenue Recognition theory states that revenue is only recognised when goods have been delivered and services have been provided.
State and explain the accounting theory behind the accounting of revenue and other income.
The Accrual Basis of Accounting Theory states that business activities that have occured regardless of whether cash has been paid or received must be recorded in the relevant accounting period.
What is the double entry for recording the receipt/return of revenue/other income?
Revenue:
Dr (+) TR
Cr (+) Sales Rev
Returns:
Dr (+) Sales Returns
Cr (-) TR
Income:
Dr (+) CAB/CIH
CR (+) Other Income
(There are no returns for services)
What is the adjustment at the end of the financial year for revenue/other income received in advance?
Dr (-) Rev/Income
Cr (+) Rev/Income RIA
What is the adjustment at the end of the financial year for revenue/other income receivable?
Dr (+) Income Receivable
Cr (+) Income
What are the four entries related to the recording of revenue and other income?
Receipt, Adjustment, Reversal, Transfer to Income Summary (financial statements)
Revenue/Income RIA is a current ______. Explain why.
Liability. Payment is received before the service is provided, meaning the service is owed to the customer, making it a liability.
Revenue/Income Receivable is a current ______. Explain why.
Asset. Service is provided but the payment is still owed by the customer to the business, making it an asset
State the effects of the non-adjustment of revenue/income RIA.
Income is overstated.
Profit is overstated.
Liabilities is understated.
State the effects of the adjustment of revenue/income RIA.
Income decreases.
Profit decreases.
Liabilities increases.
State the effects of the non-adjustment of revenue/income receivable.
Income is understated.
Profit is understated.
Assets is understated.
State the effects of the adjustment of revenue/income receivable.
Income increases.
Profit increases.
Assets increases.
In which financial statement and under which category do revenue/returns and income belong?
The statement of financial performance in the gross profit section.
In which financial statement and under which category do revenue/income RIA and receivable belong?
The statement of financial position.
Receivable belongs under the Current Assets section.
RIA belongs under the Current Liabilities section.
