Introductory accounting · Guided practice

Accrual accounting

Decide when to record revenue and expenses in two cases where the cash moves in a different month.

Start activity →Teaching notes & answers

Scripted AI tutoring demonstration · Prepared hints and feedback, not a live AI conversation.

Recognition and cash timing

Recognition means recording revenue or an expense in the accounts. Record revenue when it is earned and expenses when they are incurred, even if the cash moves in another month.

Case 1 · Revenue

A customer’s advance payment

December

A customer pays $1,000 in advance for a service.

January · following year

The business completes the entire service. No further cash is received.

When should the business recognize the $1,000 as revenue?

DecemberJanuary

Choose December or January to enable “Check my answer”.

Cash timing and accounting timing

The revenue belongs in January, when the service is completed. December’s cash receipt is an advance from the customer, not revenue yet.

Changes from this transaction only
What changes?	December	January
Cash	+$1,000	$0
Revenue	$0 revenue	+$1,000 revenue
Liability	Unearned revenue +$1,000	Unearned revenue −$1,000 (settled by providing the service)

See the journal entries

December · Receive the advance

Debit Cash $1,000

Credit Unearned revenue $1,000

January · Complete the service

Debit Unearned revenue $1,000

Credit Service revenue $1,000

Change your choice to try again. “Start again” clears your answer and hints.

Next case: the electricity bill

Case 2 · Expense

An unpaid electricity bill

December

The business uses $200 of electricity during December.

January · following year

The business pays the $200 bill for December’s electricity.

When should the business recognize the $200 electricity expense?

DecemberJanuary

Choose December or January to enable “Check my answer”.

Cash timing and accounting timing

The expense belongs in December, when the electricity is used. January’s payment settles the amount owed; it does not create a second expense.

Changes from this transaction only
What changes?	December	January
Cash	$0	−$200
Expense	+$200 expense	$0 additional expense
Liability	Utilities payable +$200	Utilities payable −$200 (settled by payment)

See the journal entries

December · Use the electricity

Debit Utilities expense $200

Credit Utilities payable $200

January · Pay the bill

Debit Utilities payable $200

Credit Cash $200

Change your choice to try again. “Start again” clears your answer and hints.

Next: practise journal entries

JavaScript is needed to check answers interactively. Revenue is recognized in January when the service is completed. Electricity expense is recognized in December when the electricity is used. Read the teaching notes below for the explanation.

Teaching notes & answers

Ask about the activity before the cash

Have students name what happened in each month before selecting an answer. Use the hint only after they have made an initial judgment.

Customer advance: December’s receipt increases cash and unearned revenue, a liability. Completing the service in January releases that liability and recognizes $1,000 of revenue.

Electricity: Using electricity in December creates a $200 expense and a payable. Paying in January reduces both cash and the payable, with no new expense.

The cases isolate timing: the service is completed entirely in January, the electricity is used entirely in December, and taxes and other transactions are omitted. This is an introductory demonstration, not a complete revenue-recognition model.

Discussion prompt: Why would recognizing everything on the cash date misrepresent each month’s activity?