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Adjusting entries for unearned revenue decrease shareholders' equity. O True O False

Adjusting entries for unearned revenue decrease shareholders' equity. O True O False
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Answer #1

False

Adjusting entries for unearned revenue will increase shareholder's equity because when it is actually earned we have to credit revenue account

Entries:

When Unearned revenue is received :

Cash A/c Dr

To Unearned Revenue A/c

(Cash - Shown as Asset, Unearned revenue will be shown as current liability in balancesheet)

When Unearned revenue is earned (i.e., services or goods actually supplied) - Adjustment entry :

Unearned Revenue A/c Dr

To Reveune A/c

Since revenue is increased - retained earning will increase - then it is needless to say that Shareholder's equity will also increase.

(Hope you will understand this, please give your valuable feedback)

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