Final answer:
When a customer redeems a $1,000 gift certificate for services, the Unearned Revenue account is debited and the Service Revenue account is credited, signifying the service's provision and revenue recognition.
Step-by-step explanation:
In accounting terms, when a customer redeems a $1,000 gift certificate for website design services, two accounts are affected: Unearned Revenue and Service Revenue. Unearned Revenue is a liability account that represents revenue for services not yet performed. Once the service is performed, it can be recognized as revenue.
The journal entry to record this transaction would be as follows:
- Debit Unearned Revenue $1,000
- Credit Service Revenue $1,000
This transaction moves the amount from a liability to a revenue account, signifying the fulfillment of the service obligation associated with the gift certificate. The unearned revenue account decreases because the obligation is settled, which requires a debit. Correspondingly, the service revenue increases (hence the credit) as the service has been provided.
Regarding payment options such as debit cards, these are different from gift certificates in that they allow customers to transfer funds electronically from their bank accounts to pay for goods or services. An overdraft occurs when an account holder withdraws more money than is available in their checking or savings account, which could result in additional fees.
Lastly, banks class deposits such as those in a checking account, savings account, or a certificate of deposit as liabilities. These deposits are owed to bank customers, who may withdraw their funds at any time.