Some new accounting students have big doubt between account receivable and revenue. Today, I am clearing your all doubts relating to this. All account receivables will be revenue in all cases. All revenue items may part of accounts receivable or not. Following example will clear this.
1st Case : Account Receivable Accounts of Rent and Rent Revenue
Suppose, we give our place for rent. We receive rent at the end of month. If party does not give us rent at the end of month, it will be our revenue receivable. If this will the end of financial year, we will show this as our revenue in income statement. It means this account receivable is as revenue. We will also show same account receivable as our balance sheet asset.
2nd Case : Account Receivable Account of Customer and Cash Sales Revenue
Suppose, we sell both on cash and credit. Cash sales is an income statement account that reports the amount of cash sales as our revenue. But, see that we do not record sundry debtors or account receivable account in income statement. It is right because sundry debtors are the part of balance sheet assets. But, we included same of credit sales amount already included in cash sales as sales revenue. It means all the account receivable accounts are the part of revenue account as per the accrual method of accounting.
{ Important : At the end of closing year, if account receivable of different incomes are in the trial balance, it means we have completed its adjustment, there is no need to added outstanding income or account receivable of income in revenue account}
1st Case : Account Receivable Accounts of Rent and Rent Revenue
Suppose, we give our place for rent. We receive rent at the end of month. If party does not give us rent at the end of month, it will be our revenue receivable. If this will the end of financial year, we will show this as our revenue in income statement. It means this account receivable is as revenue. We will also show same account receivable as our balance sheet asset.
2nd Case : Account Receivable Account of Customer and Cash Sales Revenue
Suppose, we sell both on cash and credit. Cash sales is an income statement account that reports the amount of cash sales as our revenue. But, see that we do not record sundry debtors or account receivable account in income statement. It is right because sundry debtors are the part of balance sheet assets. But, we included same of credit sales amount already included in cash sales as sales revenue. It means all the account receivable accounts are the part of revenue account as per the accrual method of accounting.
{ Important : At the end of closing year, if account receivable of different incomes are in the trial balance, it means we have completed its adjustment, there is no need to added outstanding income or account receivable of income in revenue account}
Comments