Revenue adjustments

[AxelKhoo]

Hello,

I've a question about revenue. Here's the story

1. My source of income is School Fees of 2K per month
2. I issued an invoice on March of 6K which is for the duration from January to March (2k per month)

How do I recognise this income for the month of January and February? Is it even possible to backwards?

Based on my knowledge is...

If I were to issue invoice on the month of January, charging customers for 3 months(January - March). I would have credit into Deferred Revenue and do the monthly adjustments. But what do I do if it was the other way around? I've asked some friends and mostly told me to just recognise the entire 6K on the month March instead. No point to do adjustments into Jan and Feb.

Please share your opinions.

 

[kirby]

I agree with your friends.

 

[AxelKhoo]

Thanks for taking your time to reply, Kirby

My boss wants to split the income evenly of 3 months. Despite only wanting to issue only 1 invoice on March. Is it even possible to do adjustment backwards?

 

[kirby]

OK, well let's make Boss happy.
Assume you know you have one contract at $2K a month.
Now we will use accrual accounting.

In January you make this journal entry:
DR School Fees Receivable (an Asset account) $2K
CR School Fees <$2K>

And same entry for Feb which you post in Feb and March which you post in March.

And when you get the $6k check you make this entry
DR Cash $6K
CR School Fees Receivable <$6K> (which is the sum of Jan and Feb and March)

If right now it is after March and you wanted to make the Jan and Feb and March accruals "backwards" into those months, you can go ahead and do that by adjusting your books into the past months. But if you have already made financial statements for those months (Jan Feb March) and sent them out to other people then making an adjustment to a prior month will cause problems. Because financial statements you sent out previously will no longer match to your books.