Module 2 Deferred Revenue, Gift Certificate, Refundable Deposits and Bonus

Accruals vs Deferrals

Accrual
- Earned revenue
- Incurred expenses
- No cash received or paid

Deferral
- Cash is received
- Cash is paid
- Revenue not yet earned or expenses not yet incurred

Deferred revenue or unearned income

- Income received but not yet earned

Journal Entries:

Liability Method:

When cash was received:

Cash xx
Unearned Income xx

When service was performed:

Unearned Income xx
Income xx

Income Method:

When cash was received:

Cash xx
Income xx

When service was not performed:

Income xx
Unearned Income xx

Gift Certificate
- Voucher given as a present that is exchangeable for a specified cash
value of goods or service from a particular place of business
Journal Entries:

When gift certificate was sold:

Cash xx
Gift Certificate Payable xx

When gift certificate was redeemed:

Gift Certificate Payable xx
Sales xx

When gift certificate was not redeemed:

Gift Certificate Payable xx
Forfeited Gift Certificate xx

Refundable Deposits
- Consist of cash or property received from customers but which are
refundable after compliance with certain conditions

Journal Entries:

When container’s deposit was received from a customer:

Cash xx
Container’s Deposit xx

When container’s deposit was returned to a customer:

Container’s deposit xx
Cash xx

When container’s deposit was not returned:

Container’s Deposit xx
Container xx

Bonus
- Is a financial compensation that is above and beyond the normal
payment expectations of its recipient.

Bonus computation:

1. Before bonus and before tax

B = %(Net Income)

2. After bonus but before tax

B = %(NI-B)
 3. Before bonus but after tax
B = %(NI-T)
T = %(NI-B)
B = %(NI-(%(NI-B))

4. After bonus and after tax

B = %(NI-B-T)
T = %(NI – B)
B = %(NI-B-(%(NI-B))

Journal Entry:
Bonus Expense xx
Bonus Payable xx