1. © 2015 Cengage Learning. All Rights Reserved. Learning Objectives © 2015 Cengage Learning. All Rights Reserved. LO1 Describe and illustrate the adjusting and reversing entries for unearned revenue. LO2 Describe and illustrate the adjusting and reversing entries for accrued revenue. LESSON9-1 Unearned and Accrued Revenue

2. © 2015 Cengage Learning. All Rights Reserved. Adjusting Entry for Unearned Revenue ●Cash received for goods or services which have not been provided is called unearned revenue or deferred revenue. SLIDE 2 Lesson 9-1 LO1 © 2015 Cengage Learning. All Rights Reserved. On December 1, Vaughn Distributors received $7,500.00 from Keller Construction ($2,500.00 per month for December, January, and February rent). The receipt was recorded initially as rent income and is included in the $35,000.00 balance of Rent Income. The January and February rent is unearned at the end of December and requires adjustment.

3. © 2015 Cengage Learning. All Rights Reserved. Reversing Entry for Unearned Revenue ●A reversing entry returns the amount of unearned revenue to the account in which it was recorded initially. SLIDE 3 Lesson 9-1 LO1 © 2015 Cengage Learning. All Rights Reserved. On December 31, Rent Income is closed as part of Vaughn Distributors’ closing entries. After closing entries are posted, the balance in Rent Income is zero and ready to record transactions in the next fiscal period.

4. © 2015 Cengage Learning. All Rights Reserved. Adjusting Entry for Accrued Interest Income ●Revenue earned in one fiscal period but not received until a later fiscal period is called accrued revenue. SLIDE 4 Lesson 9-1 LO2 © 2015 Cengage Learning. All Rights Reserved. On December 31, Vaughn Distributors has two notes receivable outstanding and records accrued interest income. Note Receivable No. 18, a 60-day, 8% note dated Nov. 30, $8,250. Note Receivable No. 19, a 90-day, 10% note dated Dec. 15, $7,400. On December 31, Vaughn Distributors has two notes receivable outstanding and records accrued interest income. Note Receivable No. 18, a 60-day, 8% note dated Nov. 30, $8,250. Note Receivable No. 19, a 90-day, 10% note dated Dec. 15, $7,400.

5. © 2015 Cengage Learning. All Rights Reserved. Reversing Entry for Accrued Interest Income ●An entry made at the beginning of one fiscal period to reverse an adjusting entry made in the previous fiscal period is called a reversing entry. LO2 Lesson 9-1 © 2015 Cengage Learning. All Rights Reserved.

6. Lesson 9-1 Audit Your Understanding 1.What is another term used to describe unearned revenue? SLIDE 6 ANSWER Deferred revenue. Lesson 9-1 © 2015 Cengage Learning. All Rights Reserved.

7. Lesson 9-1 Audit Your Understanding 2.How is the account Unearned Rent classified on the financial statements? SLIDE 7 ANSWER As a current liability. Lesson 9-1 © 2015 Cengage Learning. All Rights Reserved.

8. Lesson 9-1 Audit Your Understanding 3.What is the rule for determining whether an adjusting entry should be reversed? SLIDE 8 ANSWER If an adjusting entry creates a balance in an asset or liability account, the adjusting entry is normally reversed. Lesson 9-1 © 2015 Cengage Learning. All Rights Reserved.

9. Lesson 9-1 Audit Your Understanding 4.In which section of the income statement is the account Interest Income reported? SLIDE 9 ANSWER In the Other Revenue section. Lesson 9-1 © 2015 Cengage Learning. All Rights Reserved.