finance

Revenue Recognition for Advance Payments
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Revenue Recognition for Advance Payments
Hamilton Company should record the revenue six months after the receipt of the $630,000 from the sale tickets for the upcoming season of six Broadway musicals. According to the principle of revenue recognition, a company is required to record its revenue only when it has been earned CITATION Cam16 l 1033 (Merritt, 2016). Accrual method accounting distinguishes revenue recognition from cash flow CITATION Cam16 l 1033 (Merritt, 2016).
The Company, in this case, will earn its revenue after it has fulfilled its obligation of delivering the performance, and can therefore lay claim to the advanced payment it has received from the sale of the performance tickets. It will still need to record the receipt of cash as a liability known as deferred revenue or unearned revenue. Each month, of the over the six months of providing the contracted service, the company will record the revenue and reduce the amount of liability CITATION Cam16 l 1033 (Merritt, 2016). By the sixth month, when all the shows have been aired, the liability will have reduced to zero.

Cash Recognition of the First Month’s Revenue
Financial Statement Effects Template
Balance Sheet
Transaction Cash Assets + Noncash Assets + Liabilities + Contribution
Capital + Earned Capital
Adjusting entry to record expiration of 1 month of prepaid services 630,000 525,000 105,000
Income Statement
Revenues – Expenses Net Income

References
Merritt, C. (2012, September 14). When Is Revenue Recorded in the Accrual Method? Retrieved February 2, 2018, from http://smallbusiness.chron.com/revenue-recorded-accrual-method-54970.html