One of the companies for which you provide accounting services offers office cleaning services and has 8 customers. Cleaning services are provided in the evenings, Sunday through Thursday, at a rate of $30 per day. Billing is done every Friday. During the month, revenue is recorded when billing is done. How do I record adjusting entry?
To record the adjusting entry for the office cleaning services revenue, follow these steps:
1. Determine the number of days in the month that fall within the billing period. Since billing is done every Friday, count the number of Fridays in the month.
2. Calculate the total revenue for the month by multiplying the number of billing days by the rate per day.
3. Debit the Accounts Receivable or Accounts Receivable - Office Cleaning Services account for the total revenue for the month. This represents the amount that has been earned but not yet billed.
4. Credit the Service Revenue or Office Cleaning Services Revenue account for the same amount. This recognizes revenue for the services provided during the month.
5. Create a reversing entry (optional). If your accounting system uses reversing entries, you can create a reversing entry on the first day of the next month. This helps to simplify the recording process in the subsequent month.
Remember to consult with your accountant or financial advisor for specific guidance tailored to your company's accounting system and practices.
To record the adjusting entry for the office cleaning services, you will need to account for the revenue that has been earned but has not yet been billed or received. This is necessary to ensure that the financial statements accurately reflect the company's financial performance for the period.
Here's how you can record the adjusting entry:
1. Determine the number of days the office cleaning services have been provided since the last billing date. For example, if the last billing was done on a Friday and today is Wednesday, there have been 5 days of services provided.
2. Calculate the total revenue earned for the period by multiplying the number of days by the daily rate. For example, if the rate is $30 per day and there have been 5 days of services provided, the total revenue earned would be $150 (5 days x $30/day).
3. Debit the Accounts Receivable (or Trade Receivables) account in the amount of the total revenue earned. This increases the amount of accounts receivable as you are recognizing the revenue that has not yet been billed or collected. The journal entry would be:
Debit: Accounts Receivable $150
Credit: Revenue $150
4. Credit the Unearned Revenue account by the same amount. This reduces the unearned revenue balance, as you are now recognizing the revenue that was previously deferred. The journal entry would be:
Debit: Revenue $150
Credit: Unearned Revenue $150
By recording these entries, you are adjusting the accounts receivable and revenue balances to reflect the earnings for the period. The Accounts Receivable will be included in the balance sheet as an asset, representing the amount expected to be received from customers. Meanwhile, the Revenue will be reflected in the income statement as an increase in the company's revenue.