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

3. Accrual Accounting Concepts

Adjusting Entries: Unearned Revenue

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Unearned Revenue

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Multiple Choice

Receiving cash from customers before services are performed affects which of the following accounts?

Service Revenue (Revenue)

Prepaid Expenses (Asset)

Accounts Receivable (Asset)

Unearned Revenue (Liability)

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Verified step by step guidance

Understand the concept of unearned revenue: Unearned revenue is a liability account that represents cash received from customers for services or goods that have not yet been provided. It reflects the company's obligation to deliver the service or product in the future.

Analyze the transaction: When cash is received before services are performed, the company has not yet earned the revenue. Therefore, the cash received cannot be recorded as revenue immediately.

Determine the correct account: Since the company has an obligation to perform services in the future, the cash received is recorded as a liability under the Unearned Revenue account.

Eliminate incorrect options: Service Revenue is incorrect because revenue is only recognized when services are performed. Prepaid Expenses is incorrect because it represents payments made by the company for future expenses, not cash received. Accounts Receivable is incorrect because it represents amounts owed to the company, not cash received.

Conclude the correct account: The correct account affected by receiving cash before services are performed is Unearned Revenue, which is classified as a liability.