Question

On July 28, 2017, Malden Cleaning Services signed a one-year contract with Bernard Crystal Palace to perform cleaning services for the customer at a rate of $1,800 per month beginning September 1. During 2017, Malden Cleaning Services provided the services required from September 1 through December 31 and received $10,800 in cash from Bernard Crystal Palace. What amount, if any, was reported as accounts receivable from Bernard Crystal Palace by Malden Cleaning Services in its GAAP balance sheet at December 31, 2017?

Answer 1

1.Signing a contract for a future service does not creat an asset or liability. Hence there will be no entry on signing of contract

2. Assuming cash of $10,800 has been received before sept, cash will be debited and unearned revenue will be creidted.

3. As on 31st Dec, 4 months service has been proivded starting from Sept. So $1800 x 4 months = $ 7200 will be transferrred from unearned revenue to revenue.

4. So the balance of unearned revenue = $ 10,800- $ 7200 = $3600 (shown as liability)

5. Accounts receivable is the amount which is receivable as on 31st Dec for the services already provided. Since here services is provided for 4 months and amount has already received for the same. Hence there will be no accounts receivable as on 31st Dec.