Multiple Choice
The adjusting entry to recognize work completed on unearned revenue involves which of the following?
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3. Accrual Accounting Concepts
Adjusting Entries: Unearned Revenue
Multiple Choice
Which of the following is an example of a deferral adjusting entry related to unearned revenue?
A
Estimating bad debt expense for the period
B
Recognizing revenue that was previously recorded as unearned when the service is performed
C
Recording accrued salaries at the end of the period
D
Recording depreciation expense for equipment
Verified step by step guidance1
Understand the concept of deferral adjusting entries: These are adjustments made to defer or postpone the recognition of revenue or expenses to the appropriate period. In this case, we are dealing with unearned revenue, which is a liability until the service is performed.
Identify the nature of unearned revenue: Unearned revenue represents cash received in advance for services or goods that have not yet been provided. It is initially recorded as a liability because the company owes the service or product to the customer.
Recognize the adjustment needed: When the service is performed or the goods are delivered, the company needs to adjust the unearned revenue account by reducing the liability and recognizing the revenue in the income statement.
Determine the journal entry for the adjustment: The adjusting entry would involve debiting the Unearned Revenue account (to decrease the liability) and crediting the Revenue account (to recognize the earned revenue).
Relate this to the correct answer: The correct example of a deferral adjusting entry related to unearned revenue is 'Recognizing revenue that was previously recorded as unearned when the service is performed.' This aligns with the process of adjusting unearned revenue to reflect earned revenue.
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