1. Liability and Revenue Methods accrualsdeferrals cash AFTER eventcash BEFORE event

2. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Deferrals and accruals are presented in Chapters 3 and 4. In first discussion a handout was distributed to practice alternatives of accounting for ASSET and EXPENSE and for LIABILITY and REVENUE methods. This presentation attempts to cover the lower half of the handout dealing with liability and revenue methods of accounting for unearned revenue. To follow along you will need the handout distributed in class or available elsewhere online.

3. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods These facts are stated on the handout: The unearned advertising revenue at the beginning of the year is $20,000, revenues received in advance during the year total $130,000, and the unearned advertising revenue at the end of the year is $18,000.

4. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods These instructions are stated on the handout for part (a): Record the following directly in the T accounts for Unearned Advertising Revenue and Advertising Revenue, employing the system of initially recording advertising fees as a LIABILITY. Identify each entry by number: (1) beginning balance; (2) revenues received during the period; (3) adjusting entry at the end of the period; (4) closing entry; (5) reversing entry, if necessary.

5. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods First, let’s establish whether we are dealing with an ACCRUAL or a DEFERRAL. Just as in class, it is always best, even in this presentation, for you to make up your mind, answer it to yourself, before you see the answer here. Have you decided?

6. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Let’s find a hint in the facts on the handout and on a previous slide: These facts are stated on the handout: The unearned advertising revenue at the beginning of the year is $20,000, revenues received in advance during the year total $130,000, and the unearned advertising revenue at the end of the year is $18,000. Accrual or deferral? Have you decided?

7. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Still unsure? Then reconsider the time line illustration: accrualsdeferrals cash AFTER eventcash BEFORE event The problem suggests we received the cash in advance; we have to work to earn it. This must be a DEFERRAL.

8. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods So let’s get started. Re-read the instructions. In which account should be beginning balance appear? Advertising RevenueUnearned Advertising

9. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Wait. Before we answer that question, let’s be sure you know all about these two accounts – classifications, normal balances, financial statements, real or nominal, closed or not closed, etc. Contrast them. Advertising RevenueUnearned Advertising

10. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Wait. Before we answer that question, let’s be sure you know all about these two accounts – classifications, normal balances, financial statements, real or nominal, closed or not closed, etc. Contrast them. Advertising RevenueUnearned Advertising You answer all those questions for Unearned Advertising before looking at the answers on the next slide.

11. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Wait. Before we answer that question, let’s be sure you know all about these two accounts – classifications, normal balances, financial statements, real or nominal, closed or not closed, etc. Contrast them. Advertising RevenueUnearned Advertising Liability Credit Balance Sheet Real Not Closed

12. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Wait. Before we answer that question, let’s be sure you know all about these two accounts – classifications, normal balances, financial statements, real or nominal, closed or not closed, etc. Contrast them. Advertising RevenueUnearned Advertising Liability Credit Balance Sheet Real Not Closed Now do the same thing for Advertising Revenue. No peeking!

13. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Wait. Before we answer that question, let’s be sure you know all about these two accounts – classifications, normal balances, financial statements, real or nominal, closed or not closed, etc. Contrast them. Advertising RevenueUnearned Advertising Liability Credit Balance Sheet Real Not Closed Revenue Credit Income Statement Nominal Closed (1 st step)

14. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Wait. Before we answer that question, let’s be sure you know all about these two accounts – classifications, normal balances, financial statements, real or nominal, closed or not closed, etc. Contrast them. Advertising RevenueUnearned Advertising Liability Credit Balance Sheet Real Not Closed Revenue Credit Income Statement Nominal Closed (1 st step)

15. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods So think about the original question. In which account should be beginning balance appear? Advertising RevenueUnearned Advertising

16. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods So think about the original question. In which account should be beginning balance appear? Advertising RevenueUnearned Advertising 20,000 Because?

17. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods So think about the original question. In which account should be beginning balance appear? Advertising RevenueUnearned Advertising 20,000 Because we have chosen to use the LIABILITY method.

18. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Now the next question on the instructions: (2) revenues received during the period. In which account? Advertising RevenueUnearned Advertising 20,000 You decide.

19. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Now the next question on the instructions: (2) revenues received during the period. In which account? Advertising RevenueUnearned Advertising 20,000 Why? 130,000

20. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Now the next question on the instructions: (2) revenues received during the period. In which account? Advertising RevenueUnearned Advertising 20,000 The key to administering methods is CONSISTENCY. We have picked a method and we should follow that method all during that year. 130,000

21. © Copyright 2007 by M. Ray Gregg. All rights reserved. Comparison of Methods Key to administering methods is CONSISTENCY J F M A M J J A S O N D 20x120x2 All during that year

22. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods How many times do you think we collected cash from customers? Once? No. Lots. How many times did we have to decide what to credit? Advertising RevenueUnearned Advertising 20,000 Only ONCE. Because the key to administering methods is CONSISTENCY! Pick a method and stick with it all during that year. 130,000

23. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Let’s think of a word (adjective) to describe the balance of Unearned Advertising BEFORE adjustment. Advertising RevenueUnearned Advertising 20,000 You decide. 130,000

24. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods The balance of Unearned Advertising before adjustment is MIXED. Both earned and unearned are “stirred” together in that account. Advertising RevenueUnearned Advertising 20,000 130,000 Consider doing nothing. Liabilities are overstated, revenue is understated, net income in understated.

25. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Making an adjusting entry will make both financial statements better. What adjusting entry should we make. Advertising RevenueUnearned Advertising 20,000 130,000 You decide.

26. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000

27. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 Some are probably wondering where to get the $132,000.

28. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 $20,000 + $130,000 - $18,000 = $132,000

29. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 Think of a term to describe the $132,000.

30. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 Think of a term to describe the $132,000.

31. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 What is the balance of the unearned account now? And what does it represent?

32. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 What is the balance of the unearned account now? And what does it represent? B = 18,000

33. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 What is the balance of the unearned account now? And what does it represent? B = 18,000

34. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 One of these two accounts needs to be closed. Which one? You decide. B = 18,000

35. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 Advertising Revenue would be closed in the first step of closing entries. B = 18,000

36. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the earned portion from the unearned account to the revenue account. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 Advertising Revenue would be closed in the first step of closing entries. B = 18,000 132,000

37. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000

38. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000

39. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 1. “All accruals need to be reversed” – won’t work – deferral.

40. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 1.“All accruals need to be reversed” – won’t work – deferral. 2.If an adj entry creates bal in BS account – no, Un Adv had a bal.

41. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 1.“All accruals need to be reversed” – won’t work – deferral. 2.If an adj entry creates bal in BS account – no, Un Adv had a bal. Does the decision tree help?

42. © Copyright 2007 by M. Ray Gregg. All rights reserved. III. Deferrals B. 4. b. Decision tree conclusion Liability Method

43. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 1.“All accruals need to be reversed” – won’t work – deferral. 2.If an adj entry creates bal in BS account – no, Un Adv had a bal. Does the decision tree help? This AJE does NOT need to be reversed.

44. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 1.“All accruals need to be reversed” – won’t work – deferral. 2.If an adj entry creates bal in BS account – no, Un Adv had a bal. But those are rules, rules, rules! Wouldn’t it be better to UNDERSTAND it?

45. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 CONSISTENCY! … all during that year, and … from one year to the next What is the “key” in administering “methods?”

46. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 Liability. Which method did we use THIS year?

47. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 Liability. Which method should we use NEXT year?

48. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 Liability. In which account should be beginning balance appear?

49. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 In the liability account. In which account should be beginning balance appear? Where is it now?

50. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 20,000 130,000 132,000 B = 18,000 132,000 In the liability account. In which account should be beginning balance appear? Where is it now? Then leave it alone. No reversing entry is necessary.

51. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods These instructions are stated on the handout for part (b): Record the following directly in the T accounts for Unearned Advertising Revenue and Advertising Revenue, employing the system of initially recording advertising fees as REVENUE. Identify each entry by number: (1) beginning balance; (2) revenues received during the period; (3) adjusting entry at the end of the period; (4) closing entry; (5) reversing entry, if necessary.

52. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods In which account should be beginning balance appear? Advertising RevenueUnearned Advertising

53. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods In which account should be beginning balance appear? Advertising RevenueUnearned Advertising 20,000 Because?

54. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods In which account should be beginning balance appear? Advertising RevenueUnearned Advertising 20,000 Because we have chosen to use the REVENUE method.

55. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Now the next question on the instructions: (2) revenues received during the period. In which account? Advertising RevenueUnearned Advertising You decide. 20,000

56. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Now the next question on the instructions: (2) revenues received during the period. In which account? Advertising Revenue Why? 130,000 20,000 Unearned Advertising

57. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Now the next question on the instructions: (2) revenues received during the period. In which account? Advertising RevenueUnearned Advertising The key to administering methods is CONSISTENCY. We have picked a method and we should follow that method all during that year. 130,000 20,000

58. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods How many times do you think we collected cash from customers? Once? No. Lots. How many times did we have to decide what to credit? Advertising RevenueUnearned Advertising Only ONCE. Because the key to administering methods is CONSISTENCY! Pick a method and stick with it all during that year. 130,000 20,000

59. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Let’s think of a word (adjective) to describe the balance of Advertising Revenue BEFORE adjustment. Advertising RevenueUnearned Advertising You decide. 130,000 20,000

60. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods The balance of Advertising Revenue before adjustment is MIXED. Both earned and unearned are “stirred” together in that account. Advertising RevenueUnearned Advertising Consider doing nothing. Revenue is overstated, liabilities are understated, net income in overstated. 130,000 20,000

61. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Making an adjusting entry will make both financial statements better. What adjusting entry should we make. Advertising RevenueUnearned Advertising You decide. 130,000 20,000

62. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the unearned portion from the earned account to the liability account. Advertising RevenueUnearned Advertising 130,000 20,000

63. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the unearned portion from the earned account to the liability account. Advertising RevenueUnearned Advertising 18,000 The $18,000 was described in the problem as unearned. 130,000 20,000

64. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the unearned portion from the earned account to the liability account. Advertising RevenueUnearned Advertising One of these two accounts needs to be closed. Which one? You decide. B = 132,000 18,000 130,000 20,000

65. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the unearned portion from the earned account to the liability account. Advertising RevenueUnearned Advertising One of these two accounts needs to be closed. Which one? You decide. B = 132,000 18,000 130,000 20,000

66. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the unearned portion from the earned account to the liability account. Advertising RevenueUnearned Advertising Advertising Revenue132,000 Income Summary132,000 B = 132,000 18,000 130,000 20,000

67. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods Under these circumstances the adjusting entry should transfer the unearned portion from the earned account to the liability account. Advertising RevenueUnearned Advertising Advertising Revenue132,000 Income Summary132,000 18,000 130,000 20,000 132,000

68. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Advertising RevenueUnearned Advertising 18,000 130,000 20,000 132,000

69. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 18,000 20,000 132,000130,000

70. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 1. “All accruals need to be reversed” – won’t work – deferral. 18,000 20,000 132,000130,000

71. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 1.“All accruals need to be reversed” – won’t work – deferral. 2.If an adjusting entry creates balance in a BS account.... 18,000 20,000 132,000130,000

72. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 1.“All accruals need to be reversed” – won’t work – deferral. 2.If an adjusting entry creates balance in a BS account.... 18,000 20,000 132,000 The $18,000 credit in Unearned Advertising is the FIRST entry in that Balance Sheet account. It DOES need to be reversed. 130,000

73. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 1.“All accruals need to be reversed” – won’t work – deferral. 2.If an adjusting entry creates balance in a BS account.... Does the decision tree help? 18,000 20,000 132,000130,000

74. © Copyright 2007 by M. Ray Gregg. All rights reserved. III. Deferrals B. 6. Reversing Entries Necessary? Revenue Method

75. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 1.“All accruals need to be reversed” – won’t work – deferral. 2.If an adjusting entry creates balance in a BS account.... Does the decision tree help? This AJE DOES need to be reversed. 18,000 20,000 132,000130,000

76. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising 1.“All accruals need to be reversed” – won’t work – deferral. 2.If an adjusting entry creates balance in a BS account.... But those are rules, rules, rules! Wouldn’t it be better to UNDERSTAND it? 18,000 20,000 132,000130,000

77. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising CONSISTENCY! … all during that year, and … from one year to the next What is the “key” in administering “methods?” 18,000 20,000 132,000130,000

78. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising Revenue. Which method did we use THIS year? 18,000 20,000 132,000130,000

79. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising Revenue. Which method should we use NEXT year? 18,000 20,000 132,000130,000

80. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising Revenue. In which account should be beginning balance appear? 18,000 20,000 132,000130,000

81. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising In the liability account. In which account should be beginning balance appear? Where is it now? 18,000 20,000 132,000130,000

82. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising In the liability account. In which account should be beginning balance appear? Where is it now? There is no “normal” transaction next year that will move the balance to the revenue account where it belongs. 18,000 20,000 132,000130,000

83. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry, if necessary. Let’s decide. Advertising RevenueUnearned Advertising In the liability account. In which account should be beginning balance appear? Where is it now? It needs to be reversed. 18,000 20,000 132,000130,000

84. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry,. Advertising RevenueUnearned Advertising 18,000 20,000 132,000 Reversing entries are the exact opposite of adjusting entries. 130,000

85. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry,. Advertising RevenueUnearned Advertising Unearned Advertising18,000 Advertising Revenue18,000 18,000 20,000 132,000 Reversing entries are the exact opposite of adjusting entries. 130,000

86. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry,. Advertising RevenueUnearned Advertising Unearned Advertising18,000 Advertising Revenue18,000 18,000 20,000 132,000 Reversing entries are the exact opposite of adjusting entries. 18,000 130,000

87. © Copyright 2007 by M. Ray Gregg. All rights reserved. Liability and Revenue Methods (5) Make the reversing entry,. Advertising RevenueUnearned Advertising The $18,000 credit balance is UNEARNED at the beginning of the year, but it will be EARNED this year. No other entry will be necessary during the year. 18,000 20,000 132,000 Reversing entries are the exact opposite of adjusting entries. 18,000 130,000

88. © Copyright 2007 by M. Ray Gregg. All rights reserved. Conclusion Congratulations on completing this out-of-class lesson. You deserve a thousand brownie points! rgregg@oru.edu I hope you understood it and hope that it will be beneficial to you. I would appreciate your comments or suggestions about its effectiveness.