Answer:
As per accrual concept of accounting, income is recorded when it is earned and not when cash is received.
An income which is not yet earned i.e services for which are yet to be provided and yet cash is received against it in advance, such an advance receipt represents liability since services are yet to be provided.
The entry passed by Walker Company upon receipt being
Cash A/C Dr. $30,900
Rent Revenue A/C $30,900
(Being six month rent received in advance recorded)
By Dec 31, Walker company has provided services for 3 months out of 6 months which meant half of the rent recorded as income upon receipt above, remained unearned as on Dec 31.
The Adjusting entry as on Dec 31, would be,
Rent Revenue A/C Dr. $ 15,450
To Unearned Rent Income $15,450
(Being unearned rent income recorded)
This amount of $15,450 represents the rent received in advance which relates to three months against which services are yet to be provided i.e due.
