An airline received $90,000 from customers for flights in October and November. While $80,000 of the flights were provided in October, $10,000 of flights will occur in November, so the $10,000 received is considered prepaid revenue that has not yet been earned and must be recorded as a liability on the balance sheet.

1. 19.3
PREPAID REVENUE

2. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Prepaid Revenue: is revenue received but not yet earned. Example:
NovemberOctober
19.3 PREPAID REVENUE
Airline earns Revenue by flying
customer to destination
Customers pays airline $90,000
for flights
Balance-Day
$80,000 of the flights have
been made in October
$10,000 of the flights will be
made in November

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Prepaid Revenue: is revenue received but not yet earned. Example:
NovemberOctober
• There is an inflow of economic
benefits – the $80,000 is earned
• There is an increase in Assets – the
Cash account
• There is an increase in Owner’s
Equity
• There is a present obligation – to
provide $10,000 of flights
• Arising from a past event– the
customers paid in October
• There will be an outflow of future
economic benefits – the resources
required to provide the flights
Revenue
EARNED
Liability
UNEARNED
19.3 PREPAID REVENUE
Balance-Day

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
NovemberOctober
Income Statement for October
Revenue $
Airfares sales 80,000
Balance Sheet at 31 October
Current Liabilities $
Prepaid airfares revenue 10,000
Revenue EARNED Liability UNEARNED
19.3 PREPAID REVENUE
Balance-Day

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
SQ1 X
SQ2 X