Question

Sebastian Belle has performed $2,000 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Sebastian make?

Answer 1

Answer: The answer is: Debit Account Receivable $2,000; Credit Unearned Revenue $2,000.

Explanation: The accounting entries above were premised on the accrual accounting concept, which states that income and expenses are recognized as they occur regardless of when actual cash settlement takes place. The amount was credited to unearned revenue simply because the client has not been billed and there is not further information on the duration of the service. Therefore, the amount would be unwound from the unearned revenue to income, based on the duration of service and percentage of completion. However, when the client pays, the account receivable account would be credited.