Help with an acocunting question (1 Viewer)

[MysticalElement]

Hey guys i'm stuck on how to write the adjusted journal entry for this...i know they have recorded the entry wrong, and i cant thing of how i would write the journal entry to fix it.. thanks for any help


Swift Optics Ltd, an internet service provider, offered a special rate for new subscribers. Customers who paid their first 6 months’ fees in advance would only have to pay $370 (for the entire 6 months’ unlimited downloads). The provider recorded these fees as revenue and 5,400 people signed up. At the end of the first financial year Swift Optics Ltd. had only been providing internet connection for 4 months. Record the adjusting entry for Swift Optics Ltd.

* I've realized i typo'd accounting

 

[Affinity]

something along the lines of
debit revenue 1800x370
credit unearned fees 1800x370

 

[Cookie182]

Well firstly work out how much the prepayment is on a monthly basis- that is, 370/6=$61.66

Now, for 4 months with 5400 ppl that is: $61.66 X 5400 X 4= $1332000 (or $333 000/month).

At the original date of fee reciept, they have mistakenly recorded it as revenue (which is wrong under AASB 118 Revenue given that the service has yet to be provided). At the end of the financial year you need to recognise though that 4 months has now been earned-

Their original entry:

Cash at Bank 1 998 000
Revenue 1 998 000
( To record reciept of 6 months fees, 5400 ppl @ $370)

Adjustment-

General Journal

30/6

Revenue 666 000
Unearned Revenue 660 000
(1 998 000 - 1 332 000)

This provides for the correct recognition. If you drew the t-account for revenue, the correct CR balance of 1 332 000 now exists (as this amount has been earned at balance day) and the liability of unearned revenue has been recognised, as they still have 2 months of service to provide.

*I'm also slightly intoxicated at this point, so take my word candidly

Affinity's answer above is also much more simple and correct.