Question

Unearned Sales Revenue Brand Landscaping offers a promotion where a customer's lawn will be mowed 20 times if the customer pays $700 in advance. Required: 1. Prepare the journal entry to record the customers' prepayment of $700. (Record payment received for services not yet performed) 2. Prepare the journal entry to record Brand's mowing of the lawn one time. (Record revenue)

Answer 1

Answer:

1.   Cash                                               $700 Dr

         Unearned Service Revenue           $700 Cr

2.   Unearned Service revenue          $35 Dr

           Service Revenue                            $35 Cr

Explanation:

1. When the payment is received in advance, the cash is received so it will be debited as cash is increasing. The service has not been provided so it is a liability of the company and the unearned service revenue will be credited as liability is increasing.

2. The cash received in advance $700 is for the service that is to be provided 20 times.

When the service is provided one time, the revenue for this has been earned so it will be recorded as a decrease to liability and an increase to revenue. So unearned service revenue will be debited and service revenue will be credited.

The revenue from one time service providing is = 700 / 20 = $35