Question

The adjusting entry for deferred revenues result in a) a decrease to a liability account and...

The adjusting entry for deferred revenues result in

a) a decrease to a liability account and an increase to a revenue account.

b) an increase to a liability account and a decrease to a revenue account.

c) neither an increase or a decrease to a revenue account.

d) neither an increase or a decrease to a liability account

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Answer #1

solution

a) a decrease to a liability account and increase to revenue account

explanation :

consider a example that you have a candy shop a customer give you $120 for 12 months candy subscription

this will increase your cash by 120 and also increase deffered revenue account

cash a/c dr ..................120

to deffered Revenue accountt ......................120

after that at each month we made an adjustment entry bacause we debit the cash for a work which we have complted in following 12 months (in simple words it is a liability )

so adjustment entry

deffred reveune 10

to cash 10

this will decrease cash account and liability account .

(if you have any doubt just ask me)

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