There are occasions when sales are in essence services provided over a longer period of time. This \u201ctime\u201d can be defined either by subprojects within the service itself or straight-line period, e.g. from 1 January until 31 December. When the service is in fact comprising of subservices, you ought to apply something called a \u201cpercentage of completion\u201d method, however when it\u2019s the latter, the method for recognizing revenue is clearer and requires less complicated estimates.\u00a0<\/p>\n
Say if you\u2019re sales revenue is a fixed amount, you take the amount and divide it by the days or months within the period to find your monthly revenue. When the agreement also gives you a monthly charge, this is then the amount within your profit and loss accounts as your monthly earnings.<\/p>\n
As the first example, say that the charge for the whole period is 12,000 and this is for a full year. Your monthly revenue would then be 1,000 (12,000 divided by 12 months). First you\u2019d account for the collection of the money (if it\u2019s paid in full at the start of the agreement):<\/p>\n
#<\/strong><\/td>\n| Debit-Credit<\/strong><\/td>\n | Account name<\/strong><\/td>\n | Amount<\/strong><\/td>\n<\/tr>\n | 1<\/em><\/td>\n | Debit<\/em><\/td>\n | Cash and cash equivalents<\/em><\/td>\n | 12,000<\/em><\/td>\n<\/tr>\n | \u00a0<\/em><\/td>\n | Credit<\/em><\/td>\n | Prepayments received<\/em><\/td>\n | 12,000<\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n | <\/p>\n And then, each month you\u2019d account for sales revenue in 1,000 by debiting the liability (note here that \u201cPrepayments received\u201d is a liability within your accounts) initially accounted:<\/p>\n
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