UK Quick question about the Worksheet

[hazza]

Hi there,

So I have the following scenario in a question: 'John has recently gone into running a small guest-house providing bed and breakfast'. I need to complete a worksheet for given transactions.

I'm stuck on this one: Opened the guest-house for business and was able to let all eight rooms for the week at £30 per night per room. All the guests paid in advance.

Now I'm not to sure where this should go, I think it would be unearned revenue as the money hasn't actually been collected yet, and some guests may turn up, but I'm not sure what the other side would be...

any ideas would be great. Thanks for reading!

 

[LYAK]

Hi there,

So I have the following scenario in a question: 'John has recently gone into running a small guest-house providing bed and breakfast'. I need to complete a worksheet for given transactions.

I'm stuck on this one: Opened the guest-house for business and was able to let all eight rooms for the week at £30 per night per room. All the guests paid in advance.

Now I'm not to sure where this should go, I think it would be unearned revenue as the money hasn't actually been collected yet, and some guests may turn up, but I'm not sure what the other side would be...

any ideas would be great. Thanks for reading!

This is an example of unearned revenue; the fact that the money hasn't actually been collected has nothing to do with classifying a transaction as unearned revenue. The fact that payment has been made prior to the service the payment is being made for has been performed is what matters. Now, you have created a liability (unearned revenue), since you are now obligated to perform the service.

I don't know how payment was made (cash, on account, etc.)

Dr. (payment) $160
Cr. Unearned Revenue $160

 

[LYAK]

After the service has been performed, the liability is extinguished and revenue recognition is proper.

Dr. Unearned Revenue $160
Cr. Service Revenue $160