Question

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be:

debit Unearned Service Revenue and credit Accounts Receivable.

debit Unearned Service Revenue and credit Service Revenue.

debit Unearned Service Revenue and credit Prepaid Expense.

debit Unearned Service Revenue and credit Cash.

Answer 1

Ans: Option ( B)

Debit Unearned Service Revenue and credit Service Revenue.

Explanation:

1) When Cash is received in advance ,entry would be as follows.

Date	Account Name	Debit	Credit
1	Cash - Debit	XXX
	To Unearned Service Revenue - Credit		XXX

2) Now, when services are performed, adjusting entry would be:

Date	Account Name	Debit	Credit
2.	Unearned Service Revenue - Debit	XXX
	To Service Revenue - credit		XXX

3) When services are performed, service account is increased and therfore it is debited.

After performance of service, liability is reduce., therfore to show decrease it is debited.

4) Hence only option ( b) is correct choice.