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ADJUSTMENTS
INCOME RECEIVED IN ADVANCE
  
It may occur that you receive income or a portion of an income in advance. In the financial statements all income must be shown for a period of one year or 12 consecutive months or accounting periods or reporting dates. The income account must be adjusted to reflect the correct income amounts at the end of the financial year. The amount of the income will decrease in the books of the business and a liability is created - Income received in advance. It is regarded as a liability to the business at the end of the financial year as the income is only receivable in the next financial year.

To Identify, Enter the Transaction and to Post the Transaction to the Ledger:
Identify the account and calculate the income received in advance. For example, after analysing the pre-adjustment trial balance, it is discovered that the rent income is reflected as R()13 000. Rent income amounts to R()1 000 per month. The payment received for rent was in respect for March. Rent has been received for 13 months.

Rent of R() 13 000 was already received for 13 months. The income account reflects rent in the current financial year for 13 months. Only 12 months is applicable to the current financial year. The payments for one month, which is the income for March is a current liability for the business as at the closing date of the financial year since the benefit for the income is already received for the next financial year. To have the correct income reflected in the financial statements, the rent received for the future period must be taken out of the income account and transferred to the rent received in advance account.
Enter the transaction in the General Journal. Press the key on your keyboard or click on the speed button or icon. The Batch Type selection screen will be displayed.
Select the General journal Batch Type and click on the button. The General journal Batch Entry screen will be displayed. If the correct contra account for the batch was not displayed on the Batch Type selection screen, press the key on your keyboard or click on the speed button or icon to set the options for this batch. Note that it is recommended that the Amount Entry field be set to allow both (debit and credit).
Enter the transaction in the batch. After entering the transactions in the general journal, the transactions is as follows:

 

Minimise button - inactive. Restore button - click to display this screen to full size and click again to restore it to its original size. Title bar - double-click to display the screen in full size or to return to the normal size. Title bar. The name of the selected batch. Title bar. The Alias for the selected batch. Close button - Click to close or exit this screen. Click to delete a selected transaction. Click to insert a row or line above a selected transaction. Click to balance the batch, if the batch is not already in balance. Click to post or update the transactions to the ledger, if the batch is in balance. Click to enter transactions Inclusive or Exclusive of VAT. Click to list the entries or transactions entered into the batch. Click to access more processing options for the batch. Click to set the Options for this batch. Enter the reference number for the transaction. Enter or select the date of the transaction. Enter a description for the transaction. Select the Income account for the debit transaction and select the Income Received in Advance (Current Liabilities) account for the credit transaction. Enter the debit amount for the Income account. Enter credit amount for the Income Received in Advance (Current Liabilities) account. Scroll bar - scroll to view more transactions entered in the batch.
Click on the speed button or icon or press the key on your keyboard. Select the change the alias option.
Click on the speed button or icon or press the key on your keyboard to post the transactions to the ledger. After posting the transactions to the ledger, the entries should reflect as follows in the ledger.




The credit balance of R() 13 000 (payments for the year to date is adjusted reduced by the R() 1 000 of the transaction. This result that the net profit be decreased by the amount of R() 1 000, which is already received as at the end of the financial year (28/29 February).

It has also increased the current liabilities, as it is an income, which was already received for the new financial year. Therefore, an income of R() 12 000 will be recognised as an income and not R() 13 000.

Once these transactions have been processed and you have done the Year-end process in the Tools - Global Processes - Do Year-end menu option, you need to reverse these adjustments in the new financial year. The reason for this is that these adjustments have served its purpose in the old financial year to assist you to generate the correct final financial statements.