Sometimes in the real world journal entries are not done exactly the way we were all taught in our accounting classes. In these cases, we may have to use a little more critical thinking when preparing our necessary period-end adjusting entries.

For example, if your company receives an advance payment for services to be provided in the future, you probably learned to record an entry similar to the following:

Receiving an advance payment
Cash Dr. XX
Unearned revenue Cr. XX

Which means that when it comes time to adjust for any revenues that were subsequently earned, you would adjust by making the following entry:

Recording the adjusting entry
Unearned revenue Dr. XX
Service revenue Cr. XX

However… what if the original entry for the date of the advanced payment was made like this:

Option 2: Receiving an advance payment
Cash Dr. XX
Service revenue Cr. XX

“But… that’s wrong…” Yes, I know. However, there may be situations where we are working alongside bookkeepers that may not have as much accounting training as you do. To keep things simple, they may be told, Whenever you receive a payment from a customer, just credit revenue. Again, this is to keep things simple for the bookkeeper. As the accountant, it is your job to make the proper adjusting entry at period-end to bring things to their correct balance. Open the follow-along spreadsheet and watch the video below to see how we may handle these types of more advanced adjusting entry scenarios!