Question

Complete the paragraph to explain why unearned revenues are liabilities instead of revenues. In the​ explanation, use the following actual​ example: The New York Times​, a national​ newspaper, collects cash from subscribers in advance and later provides news content via print newspapers and online access to subscribers over a​ one-year period. Explain what happens to the unearned revenue over the course of a year as The New York Times delivers papers and online content to subscribers. Into what account does the earned subscription revenue go as The New York Times delivers papers and online​ content? Give the journal entries that The New York Times would make to​ (a) collect $ 85 comma 000 of subscription revenue in advance and​ (b) record earning $ 40 comma 000 of subscription revenue. Include an explanation for each entry.

Answer 1

Answer:

(A)

cash 85,000

unearned revenues 85,000

(B)

unearned revenues 40,000

subscroption revenues 40,000

Explanation:

(A)

Unearned revenues are a liability. It increases from the credit, so in this entry, we increased cash by the amount received and also increase unearned revenue for 85,000

WHY ARE LIABILITIES?

The payment made by customer in-advance generates an obligation to the NYT. The journal is forced to deliver their newspaper to these people, it has an obligation, which is certain and quantifiable in dollars, that fits in the definition of liabilities.

(B)

HOW UNEARNED BECOME EARNED?

Once time past AKA newspapers are delivered, the obligation decrease and part of the annual subscription become revenues