Understanding and determining the correct account for accounting is always a matter of concern and research for accountants. One of the accounting contents that accountants often confuse about the nature of accounting is to distinguish the difference between “Unearned Revenue” and “Prepayments from Customers”. To provide accountants with a thorough understanding before accounting as well as to improve the accuracy of financial statements, this article will clearly show the difference.
Unrealized revenue – Account 3387 #
Unearned Revenue: Reflects the current amount and the increase or decrease in unrealized revenue of the enterprise during the accounting period and includes revenue received in advance for one or more accounting periods... Do not record in this account the following items:
+ Money received in advance from the buyer but the enterprise has not provided products, goods or services;
+ Unearned revenue from asset leasing and service provision for many periods.
When the business has handed over its assets (eg house for rent), its source of capital (for example, lending capital) to customers and partners and at the same time received money in advance (such as rent, interest) for the use of these assets and capital in many periods, this must be recorded in unrealized revenue.
Example: Company A leases property to company B. Party A has delivered the property to Party B and has received the rent in advance for 2 years from Party B, then Party A's accountant will record it in account 3387 – “Unrealized revenue”.
Buyer pays in advance – Account 131 (Balance on Credit side) #
Buyers pay in advance reflects the amount of money received by the business in advance for goods and services to be sold or provided in the future. When the enterprise receives this amount, the goods and services have not yet transferred ownership to the buyer, and the provided services have not been completed and transferred, so revenue has not been recognized.
Therefore, the nature of the customer advance is a payable. In the future, if the unit does not sell goods as agreed, it must refund the amount received in advance by the customer. And under the contract, the business must deliver goods and perform services in the future.
For example: Company A sells goods to company B. Party A has received advance payment for the purchase of goods from Party B but has not yet delivered the goods. Party A's accountant records it in account 131 of party Yes – “Buyers pay money in advance”.
Distinguishing features when choosing an accounting account #
– At the time of recording the cash receipt transaction, if the amount to be received is related to a transaction that has generated revenue but part of which the enterprise has not yet realized.
=> Record as “Unearned Revenue”. Revenue generating transactions are transactions in which the business has transferred ownership of goods to customers or has completed services and transferred them to customers.
– At the time of recording the transaction of receiving money, if the amount to be received is related to a transaction that has not yet generated revenue, it means that the ownership of goods has not been transferred and the transfer of services has not been completed.
=> Record as “Buyer paid in advance”.
In the process of accounting, it is important for accountants to understand the exact nature of the arising transactions rather than only paying attention to the form of documents, thereby determining the appropriate terms and presenting the financial statements. most honest, most accurate. For any professional advice, please refer to Full accounting services We will work together to find the best solution for you.
