Question

On August 1 of Year 1 Accounting Associates (AA) collected $1,200 cash for consulting services to be provided for one year beginning immediately. Based on this information, which of the following show how the required adjustment on December 31, Year 1 would affect AA’s ledger accounts?a). Revenue $500 Unearned revenue $500 b) Revenue $700 Unearned revenue $700 c) Unearned Revenue $500 Revenue $500 d) Unearned revenue $700 Revenue $700

Answer 1

Answer:

c) Unearned Revenue $ 500, Revenue $ 500

Explanation:

When the cash was received on August 01, no accounting services were provided so the  entry would have been:

Cash Debit                                 $ 1,200

Unearned revenue Credit                          $  1,200

Unearned Revenue is a liability account

On December 31, a recognition needs to be made for the services revenue earned and hence the amount for 5 months amounting is debited to  unearned revenue and revenue credited with $ 500.