Students will learn to appreciate how the matching principle impacts on the assignment of expenses across different accounting periods. For example, if we have one week's worth of wages expense which spans across two months, then we must distribute the expense generated from that one pay cheque across two Income Statements.

This same phenomenon will be shown to affect revenue accounts as well as expense accounts.

So, how do we fix this situation? Well, our goal, based on the example above, is to ensure that $150.00 of Wages Expense is recorded in the month of June, and $100.00 is recorded in the month of July. So, as of the end of June, we will record the following entry:

Date	Account	Debit	Credit
June 30	Wages Expense	150.00
	Wages Payable		150.00

This entry records the precise wages expense associated with the final few days of June, while also noting that we owe our employees these wages.

So, as of the first Friday in July - which happens to be a pay day, we will pay our employees the money we owed them from the last week in June, plus the wages they earned within the first days of July. Thus, we will need to make the following entry:

Date	Account	Debit	Credit
July 2	Wages Payable	150.00
	Wages Expense	100.00
	Cash		250.00

Accrued Revenue would be used to describe the exact same situation as is illustrated above, but from the opposing perspective.

Our objective remains the same. We must ensure that each accounting period receives credit for any revenue which was earned during that period - regardless of whether payment has been received. Thus, we must calculate how much revenue has been earned, and record it within the appropriate accounting period. For the above example, an employee who kept emmaculate financial records might record such an entry as follows:

Date	Account	Debit	Credit
June 30	Wages Receivable	150.00
	Wages Earned		150.00

This entry records the precise wages earned within the final few days of June, while also noting that the employer owes these wages.

So, as of the first Friday in July - which happens to be a pay day, the employee receives the money owed from the last week in June, plus the wages they earned within the first days of July. Thus, we will need to make the following entry:

Date	Account	Debit	Credit
July 2	Cash	250.00
	Wages Receivable		150.00
	Wages Earned		100.00

Another situation which raises similar concerns is when a company takes receipt of payment before they actually provide a service or make a sale. (This does happen! Consider services which require payment up front, such as insurance companies, lawn care companies, snow removal services, etc.)

In such a situation, the company is receiving the cash before they have earned it! So, although we will debit cash, we cannot yet credit revenue, because we simply have not earned the cash yet. (Remember, the revenue recognition principle states that revenue cannot be recorded until we have provided the service or sold the good.)

So, if we can't credit revenue yet, what will we credit? Well, we can simply record the fact that we owe our customer a certain value in goods or services. Thus, we will use a liability account which we will call "Unearned Revenue."

The entry will look like this:

Date	Account	Debit	Credit
May 31	Cash	600.00
	Unearned Revenue		600.00

Now, once we have provided the goods or services, we will then be able to record the actual revenue as being earned, and we will reduce the unearned revenue account because we no longer owe the goods or services to the customer. The entry would look like this:

Date	Account	Debit	Credit
June 30	Unearned Revenue	600.00
	Fees Earned		600.00

Method of Instruction and Evaluation: