Question

ABC Catering received $800 cash from a customer for catering services  
to be provided next month. Given the choices below, determine the  
general journal entry that ABC Catering will make to record the cash receipt.
Assume the company’s policy is to initially record prepaid and unearned items  
in balance sheet accounts.

Answer 1

As per the accounting principle, the amount cannot be recorded as revenue until it is earned. In the above question, ABC catering received $800 cash from customer for which the service is to provided next month. So the journal entry will be a debit to Cash account of $ 800 and credit to unearned revenue of $ 800 respectively.

Cash ac. Dr. $800

To unearned revenue $800

The debit records the increase in the cash balance in the balance sheet of the business.

The credit to the balance sheet unearned revenue account, represents a liability to the customer for services yet to be provided. The revenue is unearned as the services have not yet been provided.

SUMMARY:

Receipt of cash from customer for services is needed to provide next month. The entry will be debit to Cash of $800 and credit to unearned revenue account of $ 800 respectively. C