Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

Which of the following journal entries most accurately reflects the accounting treatment when your company fails to send an overnight delivery that was promised to a customer, resulting in the need to recognize a liability for the service not provided?

Debit Service Revenue; Credit Unearned Revenue

Debit Unearned Revenue; Credit Service Revenue

Debit Accounts Receivable; Credit Cash

Debit Cash; Credit Service Revenue

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Verified step by step guidance

Understand the scenario: The company failed to deliver a promised service, which means it needs to recognize a liability for the unearned revenue. Unearned revenue represents money received for services not yet provided.

Review the journal entry options: The correct entry should reflect the reduction of service revenue (since the service was not provided) and the recognition of unearned revenue (a liability).

Analyze the correct accounting treatment: When a service is not provided, service revenue is reduced (debited) because the company cannot recognize it as earned revenue. Unearned revenue is increased (credited) to reflect the liability for the service obligation.

Eliminate incorrect options: For example, 'Debit Accounts Receivable; Credit Cash' and 'Debit Cash; Credit Service Revenue' do not relate to the recognition of unearned revenue. These entries are typically used for cash transactions or receivables, not for adjusting revenue and liabilities.

Select the correct journal entry: The correct entry is 'Debit Service Revenue; Credit Unearned Revenue,' as it accurately reflects the reduction in revenue and the recognition of a liability for the unearned service.