Question

On September 23, Sebadoh Company received a $350 check from Surfer Rosa Inc. for services to be performed in the future. The bookkeeper for Sebadoh Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger.
To correct this entry, the bookkeeper should:

A. debit Cash $350 and credit Unearned Service Revenue $350.
B. debit Accounts Receivable $350 and credit Unearned Service Revenue $350.
C. debit Accounts Receivable $350 and credit Cash $350.
D. debit Accounts Receivable $350 and credit Service Revenue $350.

Answer 1

Answer:

B. debit Accounts Receivable $350 and credit Unearned Service Revenue $350

Explanation:

When the check was received for services yet to be performed, an asset in form of cash is recorded as well as a liability in form of deferred revenue. If the bookkeeper for Sebadoh Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger.

To correct this entry, the amount credited to account receivable would be reclassified to Unearned or deferred revenue. by debiting accounts receivables and crediting unearned/deferred revenue.