Recognize Revenue in Excess of Billings
This scenario shows how balances shift from the billed/unearned account to the unbilled/earned account when the billing amount of $10,000 is posted, $8,000 in revenue is recognized, and another $5,000 in revenue is recognized (in excess of billings).
| GL Transactions | AC Transactions | |||
|---|---|---|---|---|
| Accounts Receivable | ||||
| Debit | Credit | |||
| 10,000(1) | ||||
| Billed/Unearned | Billed/Unearned (c) | |||
| Debit | Credit | Debit | Credit | |
| 8,000(2) | 10,000(1) | 8,000(2) | 10,000(1) | |
| 2,000(3) | 2,000(3) | |||
| Unbilled/Earned | Unbilled/Earned (c) | |||
| Debit | Credit | Debit | Credit | |
| 3,000(3) | 3,000(3) | |||
| Revenue | Revenue (p) | |||
| Debit | Credit | Debit | Credit | |
| 8,000(2) | 8,000(2) | |||
| 5,000(3) | ||||
Transaction 1 (1)
This entry bills $10,000. Since billing occurs first, the billed/unearned account is credited and Accounts Receivable is debited.
Transaction 2 (2)
This entry recognizes $8,000 in revenue. Since billing is still in excess of revenue, the billed/unearned account is debited $8,000 and revenue is recorded.
Transaction 3 (3)
Another $5,000 in revenue is recognized. Now that revenue is in excess of billing, this entry credits $5,000 to revenue, reduces the billed/unearned account to zero, and debits the remaining $3,000 of recognized revenue to the unbilled/earned account.