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afokapu / janet-mockup

simulate Janet UI in github
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Why is accrued revenue (unlike deferred revenue) an asset, and not a liability? #2

Open afokapu opened 2 years ago

afokapu commented 2 years ago

Unfortunately I only managed to find the explanation for why accrued revenue (Cash Movement prior to Accounting Recognition) is a liability (buyer might cancel etc)

However, shouldn't deferred revenue (Cash Movement after Accounting Recognition) be a liability as well? The buyer could default on us and we never end up receiving the payment?

Two possible reasons that I thought of: the important factor is whether or not, ignoring risk, cashflow (goods) is to be negative (sorted into liability) or positive (assets). Again ignoring the fact either party could default

The other thing I thought of is the general accounting equation?

afokapu commented 2 years ago

I can tell you’re thinking about this very academically and I’ve been there too when I was studying this stuff, gotta take a step back man !. Imagine you’re a builder .

Accrued revenue- you built some asshole a house but he hasn’t paid for it yet , you maybe haven’t got the final invoice amount calculated but you’ve still earned it, you’re owed something so it’s an asset, EDIT- it’s almost always easier to just think of accrued revenue like accounts receivable that hasn’t quite been ‘worked out’ yet.

Deferred revenue - some great guy gives you 500k upfront to build him a house - so you owe him something - it’s a liability .

afokapu commented 2 years ago

if you want to think about it from a JE perspective too:

Accrued Revenue: you built the the house, so you Dr. Accrued Revenue and Cr. Revenue for the amount you're still working on (or negotiating with the buyer). When you agree on a price and finally get the final invoice amount sorted, you'll Dr. A/R and Cr. Accrued Revenue, with any difference going against Revenue. When the buyer finally pays, you'll Dr. Cash Cr. A/R as needed.

Deferred Revenue: when the buyer gives you the money upfront, you Dr. Cash and Cr. Deferred Revenue. If at the end of the year you're think you're about 30% done with the house, so you'll Dr. Deferred Revenue and Cr. Revenue for 30% of the money you received.