Question

Fishing Boats for Fun charters boats for fishing trips. They accept payments in advance from customers to guarantee a boat will be available for the customer on a specific date(s). At the beginning of the year they reported unearned revenue of $18,000 in the general ledger; at the end of the year the adjusted trial balance showed $12,000 in the unearned revenue account. The difference between the two amounts between the beginning and end of the year was most likely caused by

Answer 1

The difference between the two amounts between the beginning and end of the year was most likely caused by $6,000 of income being recognized, as the service of boat charter for the same, has been completed during the year.

Unearned revenue is a liability where revenue has been received but not yet earned. It is recognized as income only when the services or goods are rendered or delivered.

As FIshing Boats for Fun accepts payments in advance from customers, they provided services worth $6,000 during the year, for which the money was received during the previous year. Hence the adjusted trial balance shows a reduced liability of $12,000 in the unearned revenue account.