Question

The Laramie Company operates a consulting practice. New clients are required to pay the firm in two transactions. First, clients must pay $200 before receiving consulting services. Second, clients must pay $1,800 once the consulting firm finishes providing services to the client. How does The Laramie Company account for the second transaction?

a. Debit the Cash account for $200 and credit the Unearned Revenue account for $200.
b. Debit the Cash account for $2,000 and credit the Service Revenue account for $2,000.
c. Debit the Cash account for $200 and credit the Prepaid Service account for $200.
d. Debit the Cash account for $1,800, debit the Unearned Revenue account for $200, and credit the Service Revenue account for $2,000.
e. Debit the Cash account for $200, debit the Prepaid Service account for $1,800, and credit the Service Revenue account for $2,000.

Answer 1

Answer:E

Explanation:Debit the cash account for $200, Debit the prepaid service account for $1,800 and credit the service Revenue account for $2,000

with the above breakdown, we have been able to account for the 2 payment tranches that comprises the sales/ revenue per client.