Certain income may have been received during the financial year but should only be received during the next financial year.

Examples of such income is where rent or other revenue is received during this financial year, but is applicable to the next financial year.

- The income account must be adjusted, so that the income account represents the income for the full financial year or 12 consecutive months (accounting periods or reporting periods). Any income applicable to the next financial year, needs to be adjusted.

- It is owed to the party who has supplied the expense item, which is already used up in the financial year.

To Identify and Calculate Income Received in Advance:

For example, Rent of 13000 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 of 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 (1000), must be taken out of the income account and transferred to the rent received in advance account.

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 13000. Rent income amounts to 1000 per month. The payment received for rent, included rent for March. Rent has been received for 13 months.

- The income of 1000 needs to be transferred to the Income Received in Advance Account.

To Adjust Income Received in Advance:

1. Click on the Batch Entry icon, or click on the Input→Batch Entry menu option.
   - Keyboard Access: Press the F2 key on your keyboard. Alternatively, you may press the Alt+I+B keys on your keyboard.
   The Batch Type Selection screen will be displayed.
2. Select the General Journal.
3. Click on the Open button. The Batch Entry Transaction screen for the General Journal will be displayed.
   - If the correct contra account is not displayed on the Batch Type Selection screen, or if you have not yet set the batch up; or if your requirements should change, click on the F10: Setup icon, or press the F10 key on your keyboard.
   - It is recommended that the Amount Entry field be set to allow both (debit and credit).
4. Enter the transaction in the batch. After entering the transactions in the general journal, the transactions are as follows:
   
   - Since no Tax is applicable to these transactions, you may select to hide the tax column, Exclusive and Inclusive icons, as well as the lookup facility in the Setup Options for the General Journal, as in this example.
   - It is not necessary to balance the batch, if you have entered debit transactions for the same amount as for credit transactions, the net total of all transactions (debits minus credits) and the reference total for the entire batch (journal) should be zero.
5. Click on the F9: Process icon, or press the F9 key on your keyboard, to change the alias.
   - This will help you if you wish to identify a specific batch to generate a batch type report, or if you wish to export posted batches to a file.
6. Click on the F8: List icon, or press the F8 key on your keyboard, to list the batch.
   - It is a good idea to list the batch, and check the entries on the batch thoroughly. If there are any errors, you may edit the batch before posting it.
7. Click on the F6: Post icon, or press the F6 key on your keyboard, to post (update) the batch to the ledger.

After posting the transactions the T-Account View of the transactions should reflect as follows:

1. Income Statement Accounts:
   
2. Balance Sheet Accounts:
   
   

The credit balance of 13000 (payments for the year to date is adjusted reduced by the 1000 of the transaction. This result that the net profit be decreased by the amount of 1000, 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 12000 will be recognised as an income and not 13000.

- Debits - Income = Credits - Liability

— digidan 2006/11/03 06:52