Another type of unrecorded revenue deals with work the business was paid for before the work was completed (unearned revenue) which was completed by the end of the period.Transactions of this type can be written two different ways.Adjusting entries are dated for the last day of the period.When analyzing adjusting entry transactions involving assets and liabilities, remember that you are recording the change in the balance, not the new balance in the account.The credit in the entry is fees earned (revenue) because we were told that ,500 had been earned.When you see earned, you should always think revenue unless the transaction states the money has not yet been earned.Maybe the business just hasn’t gotten around to completing the invoice yet, or maybe the work is partially done but not completely finished.This entry looks exactly like an entry to record work that has been completed but have not yet been paid for.
You want to ask yourself if the transaction is giving you the amount of the adjustment (revenue or expense to be recorded) or the adjusted (correct) balance in the asset or liability account.That’s a legitimate use of a retroactive effective date. One good rule of thumb is this – would you expect the parties to object to signing the signature page if the actual date of execution (which is after the effective date) was adjacent to their signatures? But in the second example, the parties would presumably not want the actual execution date anywhere on the agreement!Contrast that with an agreement dated “effective as of December 31, 2012” when the parties did not reach agreement until January 2013, but used the 2012 date to get last year’s substantially lower long term capital gain rates. For a very good article on this topic from an excellent resource for the M & A lawyer, see Backdating (63 Bus. The matching principle states expenses must be matched with the revenue generated during the period.The purpose of adjusting entries is to ensure that all revenue and expenses from the period are recorded.Most adjusting entries are done after year end and backdated to the end of the year.When cash is spent, the transactions are recorded immediately.With electronic banking, we can instantly check cash transactions.There is no reason why a business shouldn’t know about transactions affecting its cash accounts. Unrecorded revenue If a business has done work for a client but has not yet created an invoice, there is unrecorded revenue that must be recorded.Expenses are recorded when bills (accounts payable) are received.If the company has already recorded all those things, then what could possibly be left to do? NOTE: Cash should never appear in an adjusting entry.