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

When Andy records an adjusting entry for deferred (unearned) revenue, which of the following actions should he take?

Debit Revenue and credit Unearned Revenue

Debit Cash and credit Revenue

Debit Accounts Receivable and credit Unearned Revenue

Debit Unearned Revenue and credit Revenue

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Verified step by step guidance

Understand the concept of deferred (unearned) revenue: Deferred revenue refers to money received by a business for goods or services that have not yet been delivered or performed. It is recorded as a liability because the company owes the service or product to the customer.

Recognize the purpose of adjusting entries: Adjusting entries are made at the end of an accounting period to update account balances and ensure that revenues and expenses are recognized in the correct period according to the accrual basis of accounting.

Identify the impact of the adjustment: When the company delivers the goods or performs the services, the deferred revenue (liability) is reduced, and revenue is recognized. This reflects the fulfillment of the obligation to the customer.

Determine the correct accounts to adjust: To record the adjustment, you need to debit Unearned Revenue (to decrease the liability) and credit Revenue (to recognize the earned income). This aligns with the principle of revenue recognition.

Prepare the journal entry: The adjusting entry will involve debiting the Unearned Revenue account and crediting the Revenue account. This ensures that the liability decreases and the revenue increases, reflecting the completion of the service or delivery of goods.