Question

Baylor service corp. redeemed $1,000 of gift cards that customers used to pay for services that were performed by the company. the related adjusting entry would include a debit to:

Answer 1

The debit would go to unearned revenue and there would be an accompanying credit to service revenue. In this manner, the service revenue (the money made from the services provided, shown here by the payment of the gift certificates) would receive a $1000 addition while the unearned revenue would drop by $1000 because the outstanding gift cards were spent, lowering the total amount of revenue earned that was still outstanding in those cards.