courses › Accounting

Cash In Is Not Always Revenue

level 5 course

Loans, owner money, deposits, and collections bring cash without being sales.

In your head, jot if needed · no calculator why?

Opens at level 5.

Builds on: The Accounting Equation (not open yet)

the lesson

The idea, the techniques and a tip for each skill, right here. The Learn page adds worked examples for every skill and untimed practice.

Read the lesson · about 3 minutes

The idea

Revenue is money the business earns by delivering goods or services. Accrual accounting counts revenue when the work is done, whenever the cash arrives.

Plenty of cash arrives without being earned. A bank loan is borrowed, so it is a liability, a debt. Owner money raises the owner's equity. A customer deposit or a gift card is goods or work the business still owes. When a customer pays an old invoice, the sale was counted when the work was done; the payment turns accounts receivable, money customers owe you, into cash.

Cash going out needs the same care. Buying equipment sends cash out, but no expense is recorded yet: the cash has turned into another asset.

Techniques

Ask: was it earned this month?

Deciding whether an event adds revenue this month.

Were goods or services delivered this month? Then it is revenue, even if paid later.
Borrowed, from the owner, or for work not yet done? Not revenue.
Payment on an old invoice? No new revenue.

worked example

Example: This month a food truck sells $2,500 of meals, borrows $4,000 from a bank, and collects $600 for a catering job finished and invoiced last month. How much revenue did it earn this month?

Meals sold this month: $2,500 of revenue.
The loan is borrowed. The $600 was counted last month.

Answer: $2,500

Roll receivables forward

You know what customers owed at the start of the month.

Start with what customers owed.
Add new invoices for work done.
Subtract what customers paid. Payments shrink receivables; they are not new sales.

worked example

Example: Accounts receivable starts the month at $3,000. A landscaping crew invoices $5,000 of new work, and customers pay $4,500. What is accounts receivable at month-end?

$3,000 + $5,000 = $8,000.
$8,000 − $4,500 = $3,500.

Answer: $3,500

Tips by skill

TipHow much revenue?: Revenue rises only when goods or services are delivered. Loans, owner money, deposits and old invoices add none.
TipWhere does the other side go?: Borrowed money or work still owed is a liability. Owner money is equity. An old invoice settles receivables.
TipWhat customers still owe: Start, plus new invoices, minus customer payments. Payments shrink what customers owe.
TipBuying equipment: expense now?: Cash goes down and equipment goes up by the same amount. Total assets hold steady, and no expense is recorded today.

Watch out for

Counting a bank loan as revenue. A loan raises cash and a debt by the same amount; nothing was earned.
Counting payment on an old invoice as a new sale. That revenue was counted when the work was done.
Recording equipment bought for cash as an expense, or as a drop in total assets. The business still owns the value.

skills · practice stats

From rounds of this course only: box, review and test-out answers are left out. Once a skill has 40 tries, it compares your first 20 tries with your last 20.

How much revenue? par 12 s not tried yet
worked example
The owner puts $2,100 of personal savings into the business account. Under accrual accounting, by how much does this month's revenue increase?

Answer: $0.00
1. Revenue comes only from earning it by delivering goods or services.
2. Owner money raises cash and the owner's equity; the business didn't earn it.
3. Revenue rises by $0.
Where does the other side go? par 15 s not tried yet
worked example
A client's $2,200 check arrives for an invoice the business sent, and recorded as revenue, two months ago. Where does the other side of this cash go?
1. Revenue
2. Nothing new — it settles accounts receivable
3. Owner's equity
4. A liability (a loan or a customer deposit)
Answer: Nothing new — it settles accounts receivable
1. The sale was counted when it was invoiced. Collecting it settles the receivable; it is not a second sale.
2. Only money earned by delivering goods or services is revenue.
What customers still owe par 17 s not tried yet
worked example
Accounts receivable (money customers owe you) starts the month at $11,600. You invoice $19,300 of new work and customers pay $26,900. What is accounts receivable at month-end?

Answer: $4,000.00
1. Receivables = start + new invoices − collections
2. = $11,600 + $19,300 − $26,900 = $4,000.
3. Collections shrink receivables; they aren't new sales.
Buying equipment: expense now? par 16 s not tried yet
worked example
The business pays $4,100 in cash for an espresso machine and records it as an asset. What is the change in total assets today? (Use a minus sign for a decrease.)

Answer: $0.00
1. Cash falls $4,100 and equipment rises $4,100: one asset swaps for another.
2. Total assets don't change, and there is no expense yet; depreciation spreads the cost over later years.
3. Change in total assets: $0.

rest ladder

Win 3 of your last 4 rounds and the course rests. A win is 90% right, within 2× the round's par. Pass the review when it comes back and the next rest is longer.

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