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Posted by es330td on June 23, 2008, 9:31 am
Please log in for more thread options wrote:
>
> > Hi there all!
>
> > We have a bit of a quandry. =A0We are billing our clients for services
> > we haven't yet performed. =A0Prepaid bulk hour services. =A0To me this =
is
> > like a loan from the client UNTIL we actually perform the service at
> > which point we would enter the hours worked as income and deduct the
> > hrs worked, from the total hrs prepaid.
>
> > Example: =A050 bulk hours - $5000 =A0- Jan 1st, 2008
>
> > Work done - Jan 15th - 2 hrs
>
> So far - so good.
>
> > I imagine that the $5000 we collected, goes onto our liability sheet
> > as a loan. =A0Lets call it Client Loans.
>
> Nope. =A0At least I wouldn't call it a "loan" at all. =A0Call it what it =
is - so
> that other users of the financial statements can tell what you are doing.
>
> I'd call it "Unearned Client Revenue". =A0It is a liability, most likely =
a
> current liability unless you have someone who is paying you for more than=
12
> months of services.
>
> > Do we enter this as an asset like a bank loan then?
>
> =A0And counter the liability side with an entry
>
> > called Prepaid Hrs? =A0Like this -
>
> > Assets:
>
> > Client Loans - $5000
>
> Well, think about this. =A0Where did you put the money? =A0Unless you cre=
ated a
> separate bank account to hold those funds till you earn them, it's in you=
r
> bank account. =A0That is the debit entry.
>
> > Liabilities
>
> > Prepaid Services - $5000
>
> > How do we generate an invoice to show income? =A0Do we debit the Client
> > Loans and Prepaid Services at the same time?
>
> > We're a little bit over our heads here.
>
> The initial entry - in a manual format - would be to debit the bank accou=
nt
> you deposited the customer payment to, and to credit the Unearned Custome=
r
> Revenue account.
>
> When you actually perform the services, credit your revenue account and
> debit the unearned customer revenue account.
>
> In an automated accounting system, like QuickBooks, etc, you can direct t=
he
> transaction to post in those accounts.
>
> Who is it that you go to for tax and accounting help at year end? =A0That
> person should be someone you consult on a regular basis.
>
> --
> Paul A. Thomas, CPA
> Watkinsville, Georgia
As a followup to this, when is prepaid service revenue recognized?
Under cash accounting, revenue is recognized when cash comes in.
Under accrual, does one recognize all the income at the point the
money is received or does the revenue get recognized as the work is
actually performed? If the income is all recognized when the cash is
recieved, what is being recognized? I'm trying to figure out what the
income statements would look like, say for example, a person who
enters an annual contract once a year. This person gets a check for
60K on Jan 2nd but has monthly expenses related to the service
performed. Do they show one month with a huge net income and then 11
months of negative cash flow?
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