Question

If a business received cash in advance of services performed and credits a liability account, the...

If a business received cash in advance of services performed and credits a liability account, the adjusting entry when the services are performed will be a debit to Revenues Received in Advance account (or unearned revenue) and a credit to:

Service revenue.

Accounts receivable.

Cash.

Prepaid expense.
Business   Accounting   
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Answer #1
  • When an amount is received as ‘advance’ for which the services are not yet performed:
    >Cash is debited by the amount of advance received, and
    >Unearned revenue account is credited.
  • Now, when adjusting the amount of revenue earned after the services (for which advance was received) are performed,
    >Unearned revenue account (that was earlier credited) is now debited, and
    >Service Revenue (the revenue account) gets credited.
  • Correct Answer = Option #1: Service Revenue.
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