Journal Entries for Revenue and Unearned Revenue in 2013
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1. Journal entries for Revenue and Unearned Revenue in 2013
Debit
Credit
Dr Accounts receivables / Cash
44,253
Cr Unearned revenue
44,253
Dr Recognition of unearned revenue
41,921
Cr Revenue
41,921
Dr Accounts receivables / Cash
35,928
Cr Revenue
35,928
2. T – Account for Unearned Revenue
Description
Debit
Credit
Opening balance (30 June 2012)
20,059
Deferral of unearned revenue
44,253
Recognition of unearned revenue
41,921
Closing balance (30 June 2013)
22,391
3. As any other company, Microsoft has the incentives to “manage” its earnings. In general, these incentives may include, among others:
– “smoothing” revenue volatility (seasonality, effects of new products inception etc.);
– building provisions for risk-related transactions (bad debts related to goods delivered and services provided, unfulfillment of the companys obligations for the signed contracts, production defects, etc.);

– tax shields / tax optimisation.
Revenue recognition is particularly important for Microsofts earnings, because in the software industry almost every dollar of recognized revenue goes directly to earnings. Microsoft has had very significant net income margins over last three years ranging from 23 to 33%. This could create some specific incentives to Microsoft to ” manage” its earnings:

– to create “hidden reserves” for the future when business could decline,
– to avoid an earnings shortfall relative to security analysts forecasts,
– decreasing the volatility of revenue and earnings,
– moreover, certain subjective accounting decision are also required by the existing accounting principles. As explained in the case, a part of the services paid is still not rendered, so is can

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Tax Shields And Building Provisions. (July 12, 2021). Retrieved from https://www.freeessays.education/tax-shields-and-building-provisions-essay/