Enjoyed this video? Subscribe to the channel right now, and then watch the related videos in the "adjusting entries" playlist: ruclips.net/video/lBvnSgIGVnU/видео.html You will learn more about accrued revenue and deferred revenue, as well as accrued expenses, and prepaid expenses!
@@princejag Thanks for the suggestion, but it is something I have no expertise in, and a topic that sadly has a very low search volume. Probably Professor Beneish himself would be the best person to summarize the topic in a video!
Nice to hear that, Mahesh! I think the related video on adjusting entries might be useful for you as well to watch: ruclips.net/video/57CST6_RtWk/видео.html
I spent my time getting PO for my future expenses where the FC had to accure... at times I had to can the PO to release the accured amounts as they were no longer needed or the future purchases did not happen due to circumstances... Your explanation is spot on🙂
Thank you so much for the explanation, your explanation is simple, straight forward, and clear. By the way, is there any chance to explain IFRS 16 and transfer pricing too? These are another account terms that confusing me. Thanks in advance 😃
Thank you very much for the kind words! I did have both IFRS16 and transfer pricing on my list of possible topics at some point, but given the complexity of each of these have decided not to pursue making a video about them. I don't think I can do either of the topics justice in a video of 5 to 10 minutes.
You're welcome!!!! Please subscribe to the channel, and take a look at the other videos in the adjusting entries playlist, there might be more helpful information for you there: ruclips.net/video/lBvnSgIGVnU/видео.html
@@TheFinanceStoryteller plz make one video on this using example of a manpower services co. What will be the inventory side in this regard, it looks very strange, is it Not, Professor?
Thanks for the suggestion. I will add it to my list of video topics to consider. A manpower services company indeed has no inventory. Their revenue is from services sold (a fixed amount period, or number of hours worked times external hourly rate), and the cost of services sold is the number of hours worked by the employees of the company times their hourly all-in cost. Have a look at my video on Gross Margin vs Operating Margin, where I discuss the P&L of Accenture: ruclips.net/video/VCMJzG1AaXA/видео.html
Can we say that accrued revenue occurs when the goods and services have been granted but the amount against them have not been received yet? So we just make that person a debtor who we have to receive money from. In contrast to this deferred revenue is when we have taken reward against future services or goods in advance and we are yet to deliver the services or goods against it. So we open a creditor or account payable account.
Hello Asim! What you are describing in the first part of your comment is called accounts receivable, not accrued revenue. With accounts receivable, you have already sent the invoice. With accrued revenue, you have not sent the invoice yet. Accrued revenue is revenue earned for goods or services delivered but not billed to the customer yet. Much more detail on accrued revenue in this related video: ruclips.net/video/Q3chGZEQ2Jc/видео.html As for the second part of your comment: deferred revenue is not the same as accounts payable. Deferred revenue deals with customers, not with suppliers. Deferred revenue is the obligation to deliver goods or perform services in the future for which billing has already occurred and/or cash has been received. I have a few examples of deferred revenue in this video: ruclips.net/video/SNguYyKrqL4/видео.html Hope this helps!
Hi Philip as you say the variable terminology makes understanding more challenging and a summary table with similar terms might help e.g. Revenue Recognition and Cost Recognition. Another thing making it illusive is the interaction between the BS and IS, which is under appreciated by non-accountants (and sometimes by accountants too :-)). I am working with a client now that uses Accruals and Deferrals for the software that they sell to clients through annual subscriptions and they have a hard time distinguishing between Revenue Recognition and Invoiced Revenue. But I also get confused when following the detailed explanation in the video. For Accruals at 2:50 when the customer pays the invoice why would the seller debit Cash when receiving the payment? The same at 3:40 for Deferrals?
Hi Kenneth! Good to hear from you again! If cash is received, then the balance in this account in the assets section on the balance sheet goes up. See my video on debits and credits: ruclips.net/video/n-lCd3TZA8M/видео.html By the way, the way debits and credits work in accounting is the exact opposite from what you would see on the statement you receive from your bank. If the bank states that you have a credit balance, then they are looking at things from their perspective: they owe you money (liability). This same balance is reflected as a debit balance in your own books: you have an asset called cash. If the bank debits your account (in their perspective/terminology), then they don't owe you as much anymore, their liability to you decreases. For revenue recognition, the sequence of events is key...... With accrued revenue, you 1) capture the revenue (service has been delivered, therefore the revenue is earned) in the general ledger, then 2) send the invoice to the customer, and 3) receive the payment from the customer. In short: revenue recording, then billing, then cash receipt. From a process optimization perspective, this is obviously not ideal, you would want to do the billing as soon as possible after the goods or services have been delivered. With deferred revenue, I did not specify when the invoicing takes place (with the benefit of hindsight, this would have been good to include). I lumped two steps into one. The 3-step process is 1) sending the invoice to the customer, journal entry is debit accounts receivable credit deferred revenue, 2) receiving the cash payment from the customer debit cash credit accounts receivable, and 3) recognizing the revenue debit deferred revenue B/S credit revenue I/S. In short: billing, cash receipt, then revenue recording. I love deferred revenue, getting paid before doing any work is a good position to be in! Does this help?
@@TheFinanceStoryteller Yes thanks Philip - it helps to have a clear and reliable answer, especially on topics that I only have intermittent contact with, but need to suddenly understand them in more depth for a while.
You're welcome, Kenneth! More info on the "business context" of deferred revenue in the specific video on the topic: ruclips.net/video/SNguYyKrqL4/видео.html It has some examples of specific well-known companies to make the topic come alive.
Thanks for the feedback! Maybe my individual videos on accrued revenue ruclips.net/video/Q3chGZEQ2Jc/видео.html and deferred revenue ruclips.net/video/SNguYyKrqL4/видео.html will help you, they give more examples.
In subscription billing if company pass debit memo suppose billing is $1200 .debit note is $200.so that amt is it possible to adjust in the existing schedule 0f billing to make it $1400.thanks
The definition of accrued revenue is: revenue earned for goods or services delivered but not billed to the customer yet. The definition of accounts receivable is: invoices to customers that they haven’t paid yet. So the difference between the two is whether or not an invoice exists on the balance sheet date. In the next accounting period, accrued revenue is likely to turn into accounts receivable (once the invoice is issued), and then cash (once the invoice is paid).
Yes, that would be a good name for it, and potentially less confusing, as it has the word "Receivables" in it that correctly suggests this is a balance that needs to be collected.
The Finance Storyteller - Since u mention that “could be”, is it not a real name? I have seen UBR name but seems similar to Accrued Revenue (both are assets)
Yes, it is a real name. Depends on the company / country / textbook. Sadly, there is in many cases no uniformly agreed terminology for entries that are really the same thing....
You make everything so unnecessarily complicated. Customer pays you, you deliver a service or goods. That's it, no need to move numbers around. It should be 1 entry. I bet you spend a fortune on accountants doing things no one asked for. Or how about at least calling it what it is instead. At around 1:40 you say that it could also be called "Unbilled" and "Unearned", so why then are you throwing words like "Accrued" around? Trying to sound intelligent. It comes across as arrogant. I would not hire you as an accountant.
What accrued revenue bookings as well as deferred revenue bookings deal with is timing. The payment from the customer and the delivery of the service or goods take place in different periods. This can have a big impact on profitability, taxes due, etc. Regarding your comment "things no one asked for"... you are wrong on that. Both tax authorities, and regulatory authorities that oversee the stock markets, ask for this. You might not like it, but I don't think a (tax) auditor will care about those feelings. Many of the big accounting scandals (Enron, Parmalat) were related to misstating revenue. We need to recognize the correct amounts in the right period, and have the backup (audit trail) to prove it. If you are interested, have a look at the video on revenue recognition: ruclips.net/video/816Q6pOaGv4/видео.html The sentence that I included "Accrued revenue is sometimes called unbilled revenue, while deferred revenue is sometimes called unearned revenue" is there to highlight that sadly enough, there are different terms in use for one and the same thing. I am all for synchronizing on terminology, yet have to deal with the reality that different people use different names for the same thing. Consider it a service to the viewer that I point it out.
@@TheFinanceStoryteller Thank you for your reply. You say things need to be booked in the correct period. But you wouldn’t buy something without paying for it. And you wouldn’t sell something without getting paid for it. So why not just simply make the entry the moment that money moves to or from your bank account? I consider everything to be worthless until the moment money exchanges hands. I shouldn’t be paying taxes on something for which I haven’t received payment, should I? But I should get a tax reduction for something I paid for but haven’t received any goods or services in exchange because it still counts as money leaving the company. Its an expense regardless of what I get for it in return. Your method makes my company less efficient. It gives the taxman more work as well. I’m not convinced thus far that I should be making book entries when there’s no actual movement of money. Thank you.
Enjoyed this video? Subscribe to the channel right now, and then watch the related videos in the "adjusting entries" playlist: ruclips.net/video/lBvnSgIGVnU/видео.html You will learn more about accrued revenue and deferred revenue, as well as accrued expenses, and prepaid expenses!
You are the best teacher of all times
Thank you very much for the kind words! Doing my best, and feel I am still improving.
@@TheFinanceStoryteller I want to donate to make you work more
@@FaisalAhmed-dn8bw Much appreciated! Currently on a one week family holiday, let's get in touch when I am back.
Hello Faisal. Can you e-mail me at the address mentioned in the "About" tab of my channel, then we can set up a call to discuss.
Your teachings will find a place in accounting knowledge museum.
Hahaha, that is an awesome comment, Jagadeesh! I hope the museum gets a lot of visitors. :-)
@@TheFinanceStoryteller My friend could you make a video on "Beneish M-Score Model to Fraud Investigation".
@@princejag Thanks for the suggestion, but it is something I have no expertise in, and a topic that sadly has a very low search volume. Probably Professor Beneish himself would be the best person to summarize the topic in a video!
Thank you Sir, I am B.com graduate this video really helpful for my interviews
Nice to hear that, Mahesh! I think the related video on adjusting entries might be useful for you as well to watch: ruclips.net/video/57CST6_RtWk/видео.html
I spent my time getting PO for my future expenses where the FC had to accure... at times I had to can the PO to release the accured amounts as they were no longer needed or the future purchases did not happen due to circumstances...
Your explanation is spot on🙂
Thanks for the example, and the kind words!
Hi, Deenish. I don't know what your abbreviations stand for. Is PO for purchase order? What's FC? If you don't mind my asking...
@@lisamccray6481 My guesses are PO = Purchase Order, and FC = Financial Controller, but I will have Deenish correct me in case I am mistaken!
@@TheFinanceStoryteller Thank you.
Thanks for sharing this info...
My pleasure
So accrued revenue is not yet invoiced, but account receivable is invoiced but haven't paid by the customers? Thanks!
Correct! You could say that accounts receivable is one step further along on the road towards collection. ;-)
Thank you so much for the explanation, your explanation is simple, straight forward, and clear.
By the way, is there any chance to explain IFRS 16 and transfer pricing too? These are another account terms that confusing me. Thanks in advance 😃
Thank you very much for the kind words! I did have both IFRS16 and transfer pricing on my list of possible topics at some point, but given the complexity of each of these have decided not to pursue making a video about them. I don't think I can do either of the topics justice in a video of 5 to 10 minutes.
@@TheFinanceStoryteller is okay, i understand your concern 😃
@@TheFinanceStoryteller you could break the videos down into a many series on the topic. That would solve the issue.
Thank you for a simplification 😀
You're welcome!!!! Please subscribe to the channel, and take a look at the other videos in the adjusting entries playlist, there might be more helpful information for you there: ruclips.net/video/lBvnSgIGVnU/видео.html
Really good summary thank you
Glad it was helpful! More on the topic of adjusting entries in this video: ruclips.net/video/57CST6_RtWk/видео.html
Thank you, very helpful.
You're welcome, Jeswin!
thanks alot for this!
Happy to help! Thank you for watching and commenting.
In Accrued Revenue, why nobody is talking about COGS or COSRendered? Can anyone explain this with example please.
Good point! When you record debit accrued revenue (B/S) credit revenue (I/S), you need to make the related entry for debit COGS credit inventory.
@@TheFinanceStoryteller plz make one video on this using example of a manpower services co. What will be the inventory side in this regard, it looks very strange, is it Not, Professor?
Thanks for the suggestion. I will add it to my list of video topics to consider. A manpower services company indeed has no inventory. Their revenue is from services sold (a fixed amount period, or number of hours worked times external hourly rate), and the cost of services sold is the number of hours worked by the employees of the company times their hourly all-in cost. Have a look at my video on Gross Margin vs Operating Margin, where I discuss the P&L of Accenture: ruclips.net/video/VCMJzG1AaXA/видео.html
fire video thank u
Glad you enjoyed it, David!
Can we say that accrued revenue occurs when the goods and services have been granted but the amount against them have not been received yet? So we just make that person a debtor who we have to receive money from.
In contrast to this deferred revenue is when we have taken reward against future services or goods in advance and we are yet to deliver the services or goods against it. So we open a creditor or account payable account.
Hello Asim! What you are describing in the first part of your comment is called accounts receivable, not accrued revenue. With accounts receivable, you have already sent the invoice. With accrued revenue, you have not sent the invoice yet. Accrued revenue is revenue earned for goods or services delivered but not billed to the customer yet. Much more detail on accrued revenue in this related video: ruclips.net/video/Q3chGZEQ2Jc/видео.html
As for the second part of your comment: deferred revenue is not the same as accounts payable. Deferred revenue deals with customers, not with suppliers. Deferred revenue is the obligation to deliver goods or perform services in the future for which billing has already occurred and/or cash has been received. I have a few examples of deferred revenue in this video: ruclips.net/video/SNguYyKrqL4/видео.html
Hope this helps!
@@TheFinanceStoryteller thanks
@@FirstnameLastname-ou4ks Happy to help!
Hi Philip as you say the variable terminology makes understanding more challenging and a summary table with similar terms might help e.g. Revenue Recognition and Cost Recognition. Another thing making it illusive is the interaction between the BS and IS, which is under appreciated by non-accountants (and sometimes by accountants too :-)). I am working with a client now that uses Accruals and Deferrals for the software that they sell to clients through annual subscriptions and they have a hard time distinguishing between Revenue Recognition and Invoiced Revenue. But I also get confused when following the detailed explanation in the video. For Accruals at 2:50 when the customer pays the invoice why would the seller debit Cash when receiving the payment? The same at 3:40 for Deferrals?
Hi Kenneth! Good to hear from you again! If cash is received, then the balance in this account in the assets section on the balance sheet goes up. See my video on debits and credits: ruclips.net/video/n-lCd3TZA8M/видео.html By the way, the way debits and credits work in accounting is the exact opposite from what you would see on the statement you receive from your bank. If the bank states that you have a credit balance, then they are looking at things from their perspective: they owe you money (liability). This same balance is reflected as a debit balance in your own books: you have an asset called cash. If the bank debits your account (in their perspective/terminology), then they don't owe you as much anymore, their liability to you decreases.
For revenue recognition, the sequence of events is key......
With accrued revenue, you 1) capture the revenue (service has been delivered, therefore the revenue is earned) in the general ledger, then 2) send the invoice to the customer, and 3) receive the payment from the customer. In short: revenue recording, then billing, then cash receipt. From a process optimization perspective, this is obviously not ideal, you would want to do the billing as soon as possible after the goods or services have been delivered.
With deferred revenue, I did not specify when the invoicing takes place (with the benefit of hindsight, this would have been good to include). I lumped two steps into one. The 3-step process is 1) sending the invoice to the customer, journal entry is debit accounts receivable credit deferred revenue, 2) receiving the cash payment from the customer debit cash credit accounts receivable, and 3) recognizing the revenue debit deferred revenue B/S credit revenue I/S. In short: billing, cash receipt, then revenue recording. I love deferred revenue, getting paid before doing any work is a good position to be in!
Does this help?
@@TheFinanceStoryteller Yes thanks Philip - it helps to have a clear and reliable answer, especially on topics that I only have intermittent contact with, but need to suddenly understand them in more depth for a while.
You're welcome, Kenneth! More info on the "business context" of deferred revenue in the specific video on the topic: ruclips.net/video/SNguYyKrqL4/видео.html It has some examples of specific well-known companies to make the topic come alive.
A much detailed example would be better but nice explanation anyways
Thanks for the feedback! Maybe my individual videos on accrued revenue ruclips.net/video/Q3chGZEQ2Jc/видео.html and deferred revenue ruclips.net/video/SNguYyKrqL4/видео.html will help you, they give more examples.
Hi thanks for video is it possible to post debit note in deferral schedule and debit amt will readjusted in the billing schedule
Sorry, but I don't understand your question.
In subscription billing if company pass debit memo suppose billing is $1200 .debit note is $200.so that amt is it possible to adjust in the existing schedule 0f billing to make it $1400.thanks
In Accrual Revenue, why can't we debited into account receivable side. Is this cash sale item?
The definition of accrued revenue is: revenue earned for goods or services delivered but not billed to the customer yet. The definition of accounts receivable is: invoices to customers that they haven’t paid yet. So the difference between the two is whether or not an invoice exists on the balance sheet date. In the next accounting period, accrued revenue is likely to turn into accounts receivable (once the invoice is issued), and then cash (once the invoice is paid).
@@TheFinanceStoryteller Thank you so much for your kind reply.
Great. Is Accrued Revenue same as Unbilled Receivables?
Yes, that would be a good name for it, and potentially less confusing, as it has the word "Receivables" in it that correctly suggests this is a balance that needs to be collected.
The Finance Storyteller - Since u mention that “could be”, is it not a real name? I have seen UBR name but seems similar to Accrued Revenue (both are assets)
Yes, it is a real name. Depends on the company / country / textbook. Sadly, there is in many cases no uniformly agreed terminology for entries that are really the same thing....
The Finance Storyteller - U rock
You make everything so unnecessarily complicated.
Customer pays you, you deliver a service or goods. That's it, no need to move numbers around. It should be 1 entry.
I bet you spend a fortune on accountants doing things no one asked for.
Or how about at least calling it what it is instead. At around 1:40 you say that it could also be called "Unbilled" and "Unearned", so why then are you throwing words like "Accrued" around? Trying to sound intelligent. It comes across as arrogant. I would not hire you as an accountant.
What accrued revenue bookings as well as deferred revenue bookings deal with is timing. The payment from the customer and the delivery of the service or goods take place in different periods. This can have a big impact on profitability, taxes due, etc.
Regarding your comment "things no one asked for"... you are wrong on that. Both tax authorities, and regulatory authorities that oversee the stock markets, ask for this. You might not like it, but I don't think a (tax) auditor will care about those feelings.
Many of the big accounting scandals (Enron, Parmalat) were related to misstating revenue. We need to recognize the correct amounts in the right period, and have the backup (audit trail) to prove it. If you are interested, have a look at the video on revenue recognition: ruclips.net/video/816Q6pOaGv4/видео.html
The sentence that I included "Accrued revenue is sometimes called unbilled revenue, while deferred revenue is sometimes called unearned revenue" is there to highlight that sadly enough, there are different terms in use for one and the same thing. I am all for synchronizing on terminology, yet have to deal with the reality that different people use different names for the same thing. Consider it a service to the viewer that I point it out.
@@TheFinanceStoryteller
Thank you for your reply.
You say things need to be booked in the correct period.
But you wouldn’t buy something without paying for it. And you wouldn’t sell something without getting paid for it.
So why not just simply make the entry the moment that money moves to or from your bank account?
I consider everything to be worthless until the moment money exchanges hands.
I shouldn’t be paying taxes on something for which I haven’t received payment, should I?
But I should get a tax reduction for something I paid for but haven’t received any goods or services in exchange because it still counts as money leaving the company. Its an expense regardless of what I get for it in return.
Your method makes my company less efficient. It gives the taxman more work as well.
I’m not convinced thus far that I should be making book entries when there’s no actual movement of money.
Thank you.