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<p>Options:</p> <p>A. An accrued revenue B. An unexpired cost C. An Expired Cost D .Deferred revenue.</p>
Debiting rental revenue obviously reversal of income and crediting unearned rental revenue increase liability i would like to have answer from the questioner with explanation
Purpose of debiting rental revenue and crediting unearned rental revenue is reducing liability, which was created due to taking payment in advance, when rental revenue is earned when counter part of contract has started using property or contract period has been started irrespective of usage.
This entry is passed basically due to timing difference. If the renal revenue pertains to different financial period then propertionate rental revenue is credited to unearned rental revenue account. As per accrual accounting revenue is recognised when accrued NOT when received.
It is because of we are following accounting accrual concept to prepparing fiancial statement. As per accrual concept if any income due to any finacial yeal should be recorded as income in the same fiancial year wheather recieved or to be recieved .
Hence unearned rental revenue should recorded as income pertainig to finacial year.
Deffered the revenue for the relevant period.
This is a Deferred revenue transaction.
obviously debting the rental revenue against credit to unearned rental revenue it self shows that rent has been received in advance.. the purpose of doing the journal entry is to show the correct revenue of the year. the advance amount has been recorded as unerned rental revenue.
when rent will be due journal entry would be
unearned rental revenue.......Dr
To, Revenue.
This is based on the matching Concept which states that revenue and expenses should be recorded in the period to which they relate and not when they are paid or received.
to record the Deferred revenue not earned and to reflect the correct revenue earned in the Income Statement
Income is realised when earned and not when received. By debiting rental revenue this is meant to serve that principle. By crediting the unearned revenue this is for the purpose of double entry in accordance to with the IAS7. This makes it easy for easy trace when collecting debts in this case the unearned rental revenue.
unearned / deferred revenue
It is a reversal of Reveue already relized.
