00:01
In this example, we're going to be talking about accruals by using an example with subscription revenue.
00:06
Let's say that our company, which is a home improvement magazine, collected $1 ,920 ,000 in subscription revenue on june 30th.
00:19
Each subscriber will receive an issue of this magazine in each of the next 12 months, beginning with the july issue.
00:28
What is the amount of revenue that we can earn by the end of this year? if we use the accrual method of accounting.
00:36
Well, first off, we need to put this on a monthly basis because i want to figure out how much money we earn in just one month because the initial entry that would have to be made here is reflecting that we haven't earned any of this money yet, even though we have the cash, because we haven't performed our service.
00:57
We received cash, so we had a debit to cash, but we credit unearned revenue, we haven't earned this money.
01:04
We need to give the magazines.
01:06
So how much do we earn off one month or one magazine? 1 ,920 ,000 divided by 12 magazine subscriptions...