Question

Golddigger Services, Inc. provides services to clients. On May 1, a client prepaid Golddigger Services $60,000 for 6-months services in advance. Golddigger Services' general journal entry to record this transaction will include a:_______.
A. Debit to Unearned Management Fees for $62,000.
B. Credit to Cash for $62,000.
C. Credit to Unearned Management Fees for $62,000.
D. Debit to Management Fees Earned for $62,000.
E. Credit to Management Fees Earned for $62,000.

Answer 1

Answer:

Option C Credit to Unearned Management Fees for $62,000

Explanation:

The reason is that the unearned managment fees are liabilities and so are credit in nature just like other liabilities. It is also the requirement of accrual accounting system that says the revenue and expenses must only be recorded when they are realized. Which means the revenue share for example which is $1000 must be recorded as revenue when we will deliver our customers services of one month. It doesn't matter if the revenue amount is not received in cash. So delivering your share is compulsory here to recognize sales or services.